Q4 2024 Churchill Downs Inc Earnings Call
Speaker Change: Hello and welcome to the Churchill Downs Incorporated fourth quarter and full year 2024 results conference call.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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, the press release and Form 10-K are available on our website at Churchill Downs incorporated Dot Com and now I'll turn the call over to our Chief Executive Officer, Mr. Bill <unk>.
Speaker Change: Thanks, Sam good morning, everyone.
Speaker Change: 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.
Speaker Change: I will share some high level thoughts on our growth plans for our company, including with respect to the Kentucky Derby and our HRS businesses in Virginia and Kentucky.
Speaker Change: Then Marshall will provide insight into our financial results as well as an update on our capital management strategy.
Marshall: After she finishes we will take your questions.
Marshall: 2024 was another very strong year for Churchill Downs.
Marshall: We delivered all time record net revenue and record adjusted EBITDA up, 11% and 13% respectively over the record results from 2023.
Marshall: All three of our business segments contributed to these excellent results with each delivering record net revenue and record adjusted EBITDA.
Marshall: We accomplished several key strategic and operational objectives.
Marshall: We delivered the paddock project, which exceeded everyone's expectations and drove the Kentucky Derby experience and financial results to a level few would have imagined just a handful of years ago.
Marshall: We opened our Terre Haute casino resort and the Roes gaming resort.
Marshall: Two of our largest and most ambitious projects to date.
Marshall: Which each have years of growth ahead.
Marshall: We also launched or continuing to push forward several other key initiatives like our Owensboro property, which opened last week.
Marshall: All of this while remaining conservatively levered and poised to pursue new growth opportunities.
Marshall: Our strategic choices and capital investments over recent years have positioned Churchill downs to further develop our special asset the Kentucky Derby and to expand our unique portfolio of HR am and other assets to create long term best in class shareholder value, while maintaining one of the strongest balance sheets in the industry.
Marshall: Okay.
Marshall: Now I will share an update on our growth plans for Churchill Downs race track and the Kentucky Derby.
Marshall: It's important to note that the Derby is 150 years old and has the longest continuously held sporting event in the United States over.
Marshall: Over the decades, it's become so much more than a horse race.
Marshall: The Kentucky Derby is a testament to the enduring spirit of American sportsmanship celebration and the lasting power of our traditions.
Marshall: The event is inseparable from the place Churchill Downs racetrack, and our opportunity and challenge is to innovate and evolve a historic and unique venue to exceed the ever changing expectations of our guests who seek to celebrate tradition, while enjoying the very best of modern hospitality.
Marshall: We have several guiding principles as we develop Churchill downs racetrack that we believe will continue to propel us forward over the next several years.
Marshall: First create unique once in a lifetime experiences for our guests at Churchill Downs.
Marshall: All of that the Derby is starts with our guests enthusiasm and experience.
Marshall: I'll, let the track that onsite energy is contagious and highly visible and a truly defines the television experience for those around the world.
Marshall: Second encourage and reward innovation within our team to create new experiences for our guests at all ticketing price points.
Marshall: Third remained focused on our time honored traditions through our celebration of the history of Churchill Downs, and the Kentucky Derby and fourth minimize the construction impact from expansion and renovation projects on the current year's Derby to ensure that our guests can have their bucket list experience every year.
Marshall: With these principles in mind, we are in the process of finalizing the starting gate courtyard Pavilion project for this year's Kentucky Derby 2025.
Marshall: And I've also announced our next multi year series of projects to expand the Kentucky Derby experience and to create step function growth.
Marshall: Regarding the starting gate courtyard Pavilion project.
Marshall: This is on course to be completed on time and on budget at the end of April before Derby week.
Marshall: As a reminder, we will convert 10000 bleacher seats into a mix of approximately 8500 reserved premium stadium and trackside box seats, along the homestretch near the Kentucky Derby starting gate.
Marshall: We are also significantly improving the amenities and hospitality options in and around the starting gate pavilion that will serve guests from other existing seating areas.
Marshall: Yesterday of course was a day of huge news.
Marshall: We announced a series of transformational projects that are collectively the largest expansion and renovation undertaken in the 150 year history of our company.
Marshall: This will materially reinvent three key areas of Churchill Downs racetrack.
Marshall: The changes can be grouped into three projects.
Marshall: Sky terrorists renovation and expansion the Conservatory and the infield general admission project.
Marshall: I'll provide a brief overview of each.
Marshall: First the sky tariffs.
Marshall: This project is focused on this section of Churchill Downs racetrack, starting just past the finish line, where the main fronts sides structure containing seating areas like the turf club and Millionaire's row, Ns and runs through to the first term club.
Marshall: We will replace 11500 existing seats, consisting of uncovered box seats and data dining areas with 13300 seats, providing a variety of premium hospitality experiences.
Marshall: We will demolish the existing skyterra structure, which states to the 19 sixties and replace it with a new five storey building that will meaningfully increase the number of premium seats and experienced packages at various price points, both inside the new structure and in the outdoor areas in front of the building and adjacent to the track.
Marshall: We anticipate that some sections of the new Sky terrorists building and surrounding areas will be open in time for the 2027 Derby.
Marshall: And that the remaining areas will be finished for the 2028 Derby.
Marshall: In the interim guests who sit in the existing skyterra sections will be relocated to premium temporary seating structures for the 2026 Derby and to a more limited extent the 2027 Derby.
Marshall: There is no impact on customers for this year's Derby.
Marshall: The Conservatory project will replace the temporary suites in the infield, which line the home stretch of the racetrack.
We historically built temporary seating every year that we sold at lower price premium seats.
Marshall: Our plans are to replace the 2100 temporary seats with new permanent structures, providing over 7000 premium experiences for our guests, including 36 suites.
Marshall: These new venues will line the race track directly opposite to front side hospitality areas.
Marshall: This project will be completed in three phases.
Marshall: <unk> includes a new pagoda club and tariffs along the first of several structures we call conservatories.
Marshall: The pagoda club and tariffs will offer luxury hospitality similar to the Paddock club and club Si and the area immediately surrounding an overlooking the Kentucky Derby winner Circle.
Marshall: This new concept will bring our customers an opportunity to participate in and experience a magical moment as the Kentucky Derby winner receives the Garland of Roses.
Marshall: The first Conservatory will add nine permanent suites, each with a private viewing terrace overlooking the track as well as access to a shared lawn that will allow these guests to watch the races from right up on the railroad the turf course.
Marshall: There will also be separately sold dining on the rooftop of the Conservatory.
Marshall: In addition phase one we'll add a large circular lounge on the inside of the first turn that will provide a unique hospitality experience and vantage point as the horses Thunder around the first term.
Marshall: We anticipate that phase one will be done in time for the 2026 Derby.
Marshall: Phases, two and three will involve further construction of Conservatory structure is further down the homestretch towards the starting gate to provide additional premium reserve ticket options.
Marshall: <unk> will be completed by 2027 Derby and phase III will be completed by 2028, Kentucky Derby.
Marshall: The infield general admission project will introduce three new permanent buildings in the infield that will provide guests with enhanced amenities.
Marshall: This project will improve the overall experience for all general admissions guests and also create a series of upgraded ticketing opportunities with additional entertainment and rooftop viewing access.
Marshall: The first building will be completed in time for the 2026 Derby. The second one for the 2027 Derby and the third one for the 2028 Derby.
Marshall: We will be undertaking several infrastructure improvements to support these III transformational projects over the same timeframe.
Marshall: As I mentioned on our last earnings call, we will be building, a new tunnel to the infield to provide an extraordinary immersive experience for our premium guests to enjoy while traversing back and forth between the front side of the racetrack and their premium infield seating.
Marshall: We anticipate having all three projects as well as the necessary infrastructure improvements completed by Derby $1 54 in May 2028.
Marshall: When finished we will have materially and directly improve the derby experience for approximately 20% of our current guests, while adding premium reserve tickets, representing an additional 10% to our current inventory.
Marshall: These projects enable us to continue to better segment and improve our guest experiences and to add a very manageable number of additional premium reserve tickets to optimize our revenue growth over the next several years.
Marshall: We think every single guest will feel the energy and excitement created from these innovative and transformational improvements to Churchill Downs.
Marshall: We have a track record of prudently investing capital in the Kentucky Derby to grow our iconic asset and to create significant long term shareholder value.
Marshall: We believe these investments will lay the foundation for growth over the next decade.
Marshall: Next regarding our <unk> activities in Virginia.
Marshall: The opportunity to deploy <unk> in Virginia came with our acquisition of colonial Downs race track in late 2022 part of our acquisition of <unk>.
Marshall: We've enjoyed rapid growth in our Virginia operations in 2024, our HRS venues contributed 20% of our nearly $1 $2 billion of adjusted EBITDA and.
Marshall: And that is with our Roes gaming resort opening deepen the fourth quarter.
In 2025, the investment of growth will continue.
Marshall: We are expanding our Richmond venue.
Marshall: We have added approximately 100, HRS, so far and plan to add an additional 400 incremental gains by the end of the second quarter.
Marshall: We also are building the ROE Shire gaming parlor in Henrico County, with 175, HR IMS and other guest amenities.
Marshall: We expect to open this entertainment venue during the fourth quarter of this year.
As you know we opened the Roes in Northern Virginia in November of last year.
Marshall: We now have <unk> hundred <unk> in the market.
Marshall: We estimate that the potential customer base around the Roes is very significant and nearly four times larger than several of our other key ASRM properties in Virginia and Kentucky.
Marshall: We love our location and this market.
Marshall: As we learned from the development of Derby City gaming, which we opened in September 2018, and from our other HR and facilities. We have built over the last decade. It takes some time in new markets, especially in large media markets to educate players on what historical horse racing machines are and how comparable they are to the gaming experience offered by class III machine.
Marshall: <unk>.
Marshall: HR and facilities in new markets like Northern Virginia take time to attract develop and retain customers.
Marshall: As we've just opened we are investing significantly in our marketing across northern Virginia, as we build our customer database over the next 12 months. We believe we will see a meaningful and sustained increase in our performance I've been pleased with how our team has come out of the gate as we faced a delayed opening of the property that resulted in us not being able to do much.
Marshall: Preopening marketing followed by the actual opening right in the throes of the fall federal elections, which put us into an expensive and very distracted media market. We are now seeing progress every week. The Roes is going to be a fantastic property.
Marshall: In Kentucky, we opened our new Owensboro ASRM venue last week on February 12 on time and below budget. It is located next to highway 60, just east of Owensboro.
Marshall: We are extremely pleased with the early performance of this property and look forward to its continued growth over the coming year.
Marshall: In January we began work on the Marshall yards HR and venue.
Marshall: In Calvert City, Kentucky.
Marshall: This will be our eighth ASRM venue in the Commonwealth. Its name is inspired by the railroad industry in the areas around Calvert City.
Marshall: Our location sits at the intersection of the two major highways that run through the region.
Marshall: We are on budget and on track to open this facility during the first quarter of 2026.
Marshall: In summary, 2024 was a great year for us with record financial results.
Marshall: We are confident that we will deliver strong growth in the coming years from our investments, including our flagship asset the Kentucky Derby and from our SRM opportunities in places like Virginia and Kentucky.
Marshall: We will also pursue disciplined growth with ancillary or adjacent opportunities aligned with our long term strategic plans.
Marshall: We have one of the best balance sheets in the industry with strong assets that we believe will continue to drive adjusted EBITDA and free cash flow.
Marshall: We remain committed to delivering excellent total shareholder return with consistent execution over the long term.
Marshall: Finally, the 150 <unk>, Kentucky Derby is 72 days and we plan an exciting week of racing and festivities for our guests.
Marshall: The addition of the new Paddock area last year, and the new starting gate Pavilion area. This year as well as all the investments in premium seating. We've made in the recent past has generated a lot of excitement and demand for Derby tickets.
Marshall: We are pacing ahead of Derby ticket revenue for the 150, <unk> Derby compared to last year's 150 of therapy.
Marshall: If you have not purchased your tickets yet.
Marshall: I'd encourage you to do so as soon as we anticipate being fully sold out.
Marcia Dall: With that I'll turn the call over to Marcia and then we will take your questions Marsha. Thanks.
Marcia Dall: Thanks, Bill and good morning, everyone as Bill shared 2024 was another record year for our company.
Marcia Dall: <unk> 2020, our team has delivered eight years in a row of record revenue and record adjusted EBITDA from continuing operations and successfully integrating our strategic acquisitions, our diversified portfolio of businesses highlighted by a record, Kentucky Derby week generated 11% growth in net revenue and <unk>.
Marcia Dall: 10% growth in adjusted EBITDA for 2024.
Marcia Dall: We also delivered record fourth quarter net revenue and record fourth quarter adjusted EBITDA for the overall company and across all three of our operating segments.
Marcia Dall: Today I'll start with a few insights on these financial results and provide some initial thoughts on 2025 I will then provide an update on capital management.
Marcia Dall: First regarding 2024 financial results.
Marcia Dall: Growth of our assets in Virginia, including the opening of the gross gaming resort in the fourth quarter clearly created step function growth in our financials.
Marcia Dall: Our Virginia, HRS venues generated 20% of our nearly $1 $2 billion of adjusted EBITDA in 2024.
Marcia Dall: As Bill discussed it is still early days for the rise gaming resort in Virginia. This is a great property in a great location with tremendous demographics and our leadership team committed to successfully growing this asset to deliver strong long term shareholder returns.
Marcia Dall: We also generated record adjusted EBITDA from our combined Kentucky atrium properties driven by the strong performance of our Derby City gaming Turfway and Oak Grove properties.
Marcia Dall: Churchill Downs Racetrack also delivered record adjusted EBITDA as a result of another very successful Derby week, while celebrating our 150 <unk> anniversary.
Marcia Dall: The addition of the new panic experience and increases in ticketing sponsorships para mutual wagering provided a significant lift to our financial results, while maintaining the consistently high margins that Churchill Downs racetrack has generated over the years.
Marcia Dall: We expect Churchill Downs racetrack to once again deliver strong growth in adjusted EBITDA in 2025, given the addition of the starting gate pavilion and courtyard project.
Marcia Dall: Their economics associated with the 150, <unk>, Kentucky Derby.
Marcia Dall: We have changed the name of our Twinsburg segment to wagering services and solutions to better reflect the growth of our varied commercial offerings.
Marcia Dall: Within this segment, we grew adjusted EBITDA by nearly $34 million compared to the prior year.
Marcia Dall: Merrily from our exact business, we continue to realize the benefits of our strategy to vertically integrate exacta and it's HRS system technology that we acquired in August of 2023.
Marcia Dall: Although we benefited from the pivot into BBB for online wagering on horse racing.
Marcia Dall: Inspires horse racing business generated lower handle primarily from less content and each race day cancellations is shifts in race schedules.
Marcia Dall: Overall, we remain pleased with the strong margins in this business generates despite facing industry headwinds in 2024.
Marcia Dall: And last regarding our gaming segment overall adjusted EBITDA grew 4%, primarily driven by the strong performance of our new Terre Haute property that opened on April 5th.
Marcia Dall: <unk> regional gaming properties held up relatively well in 2024, despite consumer softness and increased competition across the industry.
Marcia Dall: Our 2024 same store wholly owned casino margins, excluding insurance proceeds and racing we were down one four points compared to 2023.
Marcia Dall: Merrily driven by our properties in Maine, Maryland, and Pennsylvania.
Marcia Dall: Regional gaming consumer behavior, and fourth quarter remain consistent with recent quarters, we see strength at the higher end with rated play and weakness at the lower end and with unrated play across our properties.
Marcia Dall: Overall, we are very pleased with the results that our team delivered in 2024.
Marcia Dall: Bill discussed we will enjoy the 150 <unk>, Kentucky Derby in May and we will continue expanding the Kentucky Derby and layering on a series of new properties that collectively will fuel our growth in 2025 and beyond.
Marcia Dall: Turning to capital management, we generated $688 million or $9 22 per share of free cash flow in 2024.
Marcia Dall: Nearly 33% per share over the prior year.
Marcia Dall: The primary drivers of this increase was from the strong cash flow generated from our businesses.
Marcia Dall: Regarding maintenance capital, we spent $84 million in 2024.
Marcia Dall: To spend between 101 hundred $10 million since you tell us in 'twenty five.
Marcia Dall: The increase in maintenance capital for 2025 is driven primarily by incremental <unk> slot capital in Kentucky, and Virginia and maintenance projects at Churchill Downs Racetrack.
Marcia Dall: Regarding project capital, we spent $463 million in 2024 and expect to spend between 350 and $400 million in 2025.
Marcia Dall: This updated 2025 project capital forecast includes the expected cash outlay in 2025, so the recently announced multi year, Kentucky Derby projects.
Marcia Dall: The total project capital for these projects is expected to be spent over the next four years as each phase of the project is completed.
Marcia Dall: As a reminder, this 2025 project capital forecast also includes Finalization of the starting gate pavilion and courtyard. It sure sounds racetrack, the Owensboro HR and venue that we recently opened in western Kentucky, the expansion of our Richmond, HR and venue in Central Virginia.
Marcia Dall: Construction of the marshalling yards ASRM venue in southwestern Kentucky.
Marcia Dall: Roche, our HR and venue in Central Virginia.
Marcia Dall: As well as some other smaller capital projects for other properties.
Marcia Dall: Regarding share repurchases and dividends, we repurchased over 160000 shares in the fourth quarter under our share repurchase program. We've returned over $218 million to our shareholders in 2024 between strategic share repurchases and ongoing dividends.
Marcia Dall: At the end of December 2024, our bank Covenant leverage was 4.0 times.
Marcia Dall: Based on our capital investments and the timing of the opening of our new facilities, we expect our bank covenant net leverage to decrease below the four times range over the coming year. We then expect our bank covenant net leverage to decline in 2026 as our investments in the Derby in our HMD unused in Kentucky, and Virginia continue to ramp.
Marcia Dall: In closing as Bill said in 2024 was a tremendous year for our company with record financial results and we expect 2025 and beyond will be even better given our unique portfolio of assets and our new projects coming online that will generate a significant amount of adjusted EBITDA.
Marcia Dall: And strong free cash flow.
Marcia Dall: As always we remain committed to creating long term shareholder value.
Marcia Dall: With that I'll turn the call back over to Bill So that he can open the call for questions Bill.
Bill Mudd: Thank you Marcia.
Bill Mudd: Okay, everyone, we're ready to we're ready to take your questions.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone.
Bill Mudd: One moment please.
Bill Mudd: Yes.
Speaker Change: And your first question comes from the line of Barry Jonas with Trolls Securities.
Bill Mudd: Yes.
Bill Mudd: Hey, guys good morning.
Speaker Change: I was hoping to get your thoughts on how we should be thinking about the uplift or the ROI you expect to see from the announced Derby projects and should we be modeling any construction disruptions in the interim.
Speaker Change: Thanks, Barry and good morning, So one of our core principles is to accomplish our major construction projects year to year with respect to the Derby without disrupting the bucket list experience that everybody who comes to Derby expects to get every year.
Speaker Change: So we think we can manage.
Speaker Change: Very effectively to limit or eliminate.
Speaker Change: Any material disruption to folks.
Speaker Change: So we're very confident about doing that and that goes into how we plan these projects and in sequence the different pieces of the construction.
Speaker Change: With respect to these projects.
Speaker Change: We believe this is our.
Speaker Change: Our signature asset our key assets and as a part of generating long term.
Speaker Change: Shareholder return.
Speaker Change: Appearing shareholder return and value for our company. So these in our opinion are always the best projects. Among the best projects that we can do and they always pay off and meet our meet our hurdles. So you've seen our track record with respect to these in the past we've been doing major projects like this not this quite of the scale of this.
Speaker Change: Over the last number of years.
Speaker Change: Now just time to take it to to a much higher level, because I'm confident in our team and their ability to execute these.
Speaker Change: Perfect. Thanks, so much.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Dan <unk> with Wells Fargo.
Dan Good: Hi, This is actually for Dan Good morning, and thanks for taking my question.
Dan Good: How do you think about the Rosa trajectory and ramp and can you talk us through the puts and takes to the first few months and how do you envision the property ramping over the next three six or 12 months. Thank you.
Dan Good: Good morning Zach.
Dan Good: And.
Dan Good: In sum I would say.
Dan Good: Feel really great about the Roes. This is not our first rodeo we've built a handful of these projects a number of these projects and the Roes as a perfect location and in a fantastic market. So.
Dan Good: Very excited about that so as I made as I mentioned in my in my remarks.
Dan Good: I've had the privilege of being a part of this team and we've opened.
Dan Good: Our class III casinos, we've opened HRS we've opened.
Dan Good: VLT facilities.
Dan Good: We've had the privilege of working across a lot of different.
Game types and different projects.
Dan Good: <unk> is a fantastic project it is comparable to class III, it's getting better all the time.
Dan Good: It's been a thrill to watch that project developed so high degree of confidence as the market gets educated this is not a market that has a lot of gaming people have to leave this market to get the gaming so a lot of confidence as we.
Dan Good: Educate this market as we introduce ourselves to this market as we get trial in this market that people will like the product that they would like.
Dan Good: The location and that Youll start to see a ramp commensurate with.
Dan Good: The demographics, including population size and wealth. So the hardest part about anything when you do a large construction project like this is always the quarter to quarter timing of it always feel good about how this looks after a year. How this looks after two years. How this looks after three years, but trying to measure how this looks after <unk>.
Dan Good: One month or how this looks after two months.
Dan Good: That's always much harder to do can be impacted by weather, which we saw here.
Dan Good: We actually opened up the facility right in the middle of the federal election cycle was which was an incredibly distracting time for.
Dan Good: For everybody in that market. So all kinds of little things like that can influence numbers week to week or month to month, but over the long term or just simply noise. So I would say exact that.
Dan Good: Be patient and watch this property performed because it's going to be there for us.
Dan Good: And we don't see anything to the contrary it all looks it all looks like it's strong and it's starting to ramp appropriately just give it some time over over the next 12 months to demonstrate that.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of David Katz with Jefferies.
David Katz: Hi, good morning.
Speaker Change: Thanks for taking my questions I wanted to.
Speaker Change: Part follow that up and maybe go just a little farther I think in the past.
Speaker Change: Bill Marshall we've talked about.
Speaker Change: In the casino Slash HR.
Speaker Change: World, We think about kind of five year paybacks.
Speaker Change: As a target.
Speaker Change: And so two part question.
Speaker Change: We're still it sounds like and I don't want to.
Speaker Change: But the Roes is within that kind of framework of a five year.
Speaker Change: Payback is a reasonable way for us to think about it and then second.
Speaker Change: When we look at Kentucky.
Speaker Change: Should we potentially be looking at those investments in total right outside of Churchill Downs race track, but looking at the various HR and facilities and just piling those up and piling up the capital to put in there.
Speaker Change: Where are we in terms of getting to that.
Speaker Change: A five year payback and if it's still applies there. Thanks.
Speaker Change: Thanks, David Let me unpack that and make sure I cover all of those points that you.
Speaker Change: You mentioned so so first it is the case that.
Speaker Change: Over time, we've been pretty clear that when it comes to gaming assets brick and mortar assets.
Speaker Change: We target a five year payback of five five times payback I'd say with HRS, we've generally beaten that so not in every case, but we've also had some some very strong positive.
Speaker Change: Examples so with HRS and the markets. We're in we've seen competitive moats and strong.
Ecosystems.
Speaker Change: Where we thought we could really go hard and really get a return even quicker than five years, but generally when we look at managing our total in comparing our different opportunities to place capital across our different assets when it comes to HRS and gaming.
Speaker Change: In general.
Speaker Change: Yes.
Speaker Change: And we've been successful in doing that when it comes to.
Speaker Change: The rose.
Speaker Change: Certainly the warrant any different targets applied when we when we conceived and executed on the Roes and as I said I feel really good about that that's you don't measure these projects in one month or two months and three months.
Speaker Change: From over one year three year, five year and beyond and you can see from some of our assets in Kentucky that we still see.
Speaker Change: We can still see growth organic growth beyond that.
Speaker Change: So.
Speaker Change: So the roses, just in the beginning of that journey and when you compare to Kentucky.
Speaker Change: We manage each of those facilities individually they each have different markets. There are markets that have similarities across Kentucky, but also we do look at the whole ecosystem of Kentucky as a whole.
Speaker Change: Because of our relationship with the racing industry and the legislature in Kentucky, and how they envision and view racing and gaming as part of a single.
Speaker Change: Positive ecosystem for the state. So we look at it we look at it both ways, we want to maximize the performance of each individual facility, but we also recognize.
The support each of those facilities gives the related racetrack as part of a larger ecosystem of Kentucky racing.
David Katz: I think I covered I think I covered your major points there David if I Miss one.
David Katz: Remind me.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Chad Beynon with Macquarie.
Chad Beynon: Hi, Good morning, Thanks for taking my question and for all of the prepared remarks.
Chad Beynon: I wanted to go back to the Derby projects I feel like every year at this point.
Chad Beynon: You and the team are mentioning that pacing is head is ahead of the prior year period. So.
Speaker Change: I don't think theres been a demand issue for some time, but just wanted to get a better sense of what gives you the confidence that there will be demand for these premium seats are you seeing high return guests for those higher end offerings or do you think there is a piece of the market.
Chad Beynon: In the United States are international.
Chad Beynon: That hasn't experienced this and.
Chad Beynon: Following.
These additions maybe there's additional marketing and.
Chad Beynon: And items to get people to experience. Thank you.
Chad Beynon: Thanks, Chad.
Speaker Change: Good morning.
David Katz: So the way I look at this is we're really the beneficiary of two trends that are going in the right direction first.
Speaker Change: More holistically.
Speaker Change: There is clearly a recognized and understood shift in consumer behavior, where they in general, particularly in the United States, but even to a large extent internationally.
Speaker Change: Want to attend experiential events, they want to have big experienced bucket list experience experiences and that's helpful to events like ours, because we are in a unique American.
Speaker Change: Traditional.
Speaker Change: Special happening and so.
Speaker Change: We can take advantage, we're a beneficiary of this larger trends towards special concerts, and special big events, and travel et cetera, and that's a growing.
Speaker Change: Healthy space globally.
Speaker Change: More specifically with respect to US all of those things you mentioned are true we do have a high return quotient to our or our customer base. We have a lot of our seats that are tied up in personal seat licenses, we have a lot of demand and waiting lists for different sections and different.
Speaker Change: The experiences and all of that is good.
Speaker Change: But we also want to grow our customer base and that's why when you think about the different roads to the Kentucky Derby, where there'd be the Japanese ROE the European the Middle Eastern Road.
Speaker Change: Working hard on international and that's all about the future. We don't have to do that to sell tickets now, but we want to do projects like the ones. We announced today, we want to do expansion in growth projects for the Kentucky Derby for generations to come in order to do that we want to reach further afield and build new <unk>.
Speaker Change: Pockets of customers that is healthy for our event that's part of how we think about what we're doing.
Speaker Change: And we hope and expect that as a big part of our future. So whether it is developing new markets in the United States are pushing deeper into the northeast to the West Coast. We do all those things we have.
Speaker Change: We have a process and a team and a methodology for doing that or whether we push further internationally, you're going to see us aggressively try to grow new customers and it's incumbent on our team to create the hospitality experiences to absorb those new customers. When we find them, we're not resting on our laurels.
Speaker Change: Only about selling the seats, we have we're driving demand to drive ticket prices now, but also to drive.
Speaker Change: Confidence that future expansion projects are justified.
Speaker Change: We will be supported by by new customers that want to come and so far it's been very very satisfying to see the team fire on all cylinders and to see evidence of.
Speaker Change: And expansion in our international customers and expansion and our customers that come from outside of this region. Its been satisfying to see the team demonstrate improvement on those metrics.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Jordan Bender with citizens.
Speaker Change: Good morning, everyone a lot of good commentary on the direction of travel for growth capital in the coming years, Yeah. A lot of this capital is focusing the growth your areas the business like your HRS and the tracks, which are which.
Speaker Change: Begs the question how do you view the regional gaming business in terms of future investment and really just kind of how it fits into the total at Churchill Downs enterprise in the coming years. Thank you.
Speaker Change: I appreciate that question.
Speaker Change: Don't think of regional gaming as a single.
Speaker Change: Industry.
Speaker Change: And our company we look at.
Speaker Change: Individual markets, we look at individual opportunities.
Speaker Change: We assess them based on the dynamics and the trends we see for those properties. So.
Speaker Change: So I don't want to give a broad general answer, but I do think.
Speaker Change: And the country you see pockets of regional gaming, where I think there is opportunities in you see pockets of.
Speaker Change: The United States, where it seems.
Speaker Change: Charity has long since been established so for our company. We're interested in growth we're interested in building our company growing our company improving our margins.
Speaker Change: Moving improving our adjusted EBITDA. So there is a focus on our bias in our company to pursue opportunities where long term, we expect to be able to generate growth.
Speaker Change: And that's.
Speaker Change: Thats an expectation for all of the properties that are in our family and they get evaluated as such.
Speaker Change: And we look at that sort of thing constantly because we expect that contribution in that improvement.
Speaker Change: Constantly.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Jeff Special with Stifel.
Speaker Change: Great. Good morning, everyone. Thanks for taking our question.
Jeff Special: Last month, there were some reports out of California that suggested that the tracks there can make a push for expansion into historical horse racing Bill I'm curious just to get your thoughts on how viable do you think this is legally if you think you could help accelerate these efforts with your experience in the sector and if it is ultimately approved how you might look to participate there.
Speaker Change: Or whether it's through exact or M&A. Thanks.
Jeff Special: Yes, Thanks, Jeff.
So we don't have a racetrack in California, So we don't participate in producing racing in California.
Jeff Special: However, one of the things about our company that's been a real plus.
Jeff Special: And I think we earned it because we thought about it and advanced in pursuit of carefully as we got into providing.
Jeff Special: HRS services, so exactly as a central determinant system.
Jeff Special: It is whether it be exact or one of the competitors. It is necessary. It is a component it is a necessary requirement in order to conduct <unk>.
Jeff Special: And that for us as a <unk>.
Jeff Special: Nice business, a lucrative business it not only serves our own.
Jeff Special: Sites, but also.
Jeff Special: We have a <unk> component, where we provide those services to other third party site operators. So if there were opportunities in California, that's most likely how we would have the opportunity to participate it would be through the provision of exact as products and services as to what's going to happen in California.
Jeff Special: <unk>.
Speaker Change: I don't know and probably shouldnt speak to that because I am sure Thats a.
Jeff Special: A question of.
The business community and the political community, but if if the racing community so fortunate as to.
Jeff Special: Have the chance to implement <unk>, we look forward to helping them do so and we certainly have the capabilities to do so but whether it be in California or in other jurisdictions in the United States.
Jeff Special: I believe we're not done with the <unk> rollout I think I think.
Jeff Special: There's a reasonable opportunity a reasonable probability that we will see other juror.
Curious fictions potentially.
Jeff Special: Interest in legalized the product over the next handful of years.
Jeff Special: Thank you.
Joe Stauff: And our next question comes from the line of Joe Stauff with S. ICD.
Bill Marcia: Good morning, Bill Marcia.
Joe Stauff: So I was interested in maybe just.
Joe Stauff: Reassessing, where we're at in terms of.
Joe Stauff: Both in Kentucky, and Virginia, as the Gray market.
Joe Stauff: Gaming enforcement.
Joe Stauff: I guess overall.
Joe Stauff: Yes. The assumption is in Kentucky is further along maybe sixth inning of the ballgame maybe further.
Joe Stauff: Whereas in Virginia. It's earlier I was wondering if you could possibly refresh us on.
Joe Stauff: Kind of where.
Joe Stauff: The enforcement.
Joe Stauff: Pushing out the gray markets are in those respective markets.
Joe Stauff: Sure happy to do that Joe Thanks for the question.
Joe Stauff: So.
Joe Stauff: Great games I'm not sure I'd use the baseball analogy, although I like baseball analogies, but great games is more of a whack a mole thing.
Joe Stauff: That's sort of a rogue operators that participate in gray games are constantly trying to come up with absurd.
Joe Stauff: <unk> to their games to argue that they've somehow.
Joe Stauff: <unk> gotten out of the clear illegal space into something that's more gray the whole name great games.
Joe Stauff: Whole nomenclature around great games, I think is often misunderstood.
Joe Stauff: Most of the time these gains arent gray there black they're illegal.
Joe Stauff: In the case of Kentucky, and Virginia, Theres been a lot of progress we have a legislature.
Joe Stauff: And an executive branch in both.
Joe Stauff: Both states, that's very supportive and.
<unk>.
Joe Stauff: Following the law and in enforcing the law. So gray games are not legal in these jurisdictions, but theres legacy issues that the attorney generals and other law.
Joe Stauff: <unk> enforcement agencies continue to pursue.
And we have this phenomenon also of whack, a mole where they pop up under some new.
Joe Stauff: Paradigm. So I think we're going to see that continue but there has been substantial progress that we're very pleased with.
Joe Stauff: And I Couldnt tell you what inning, we're in and if we were in the sixth inning now we may have to go back to the third inning.
Joe Stauff: But generally progress is slow and steady and eliminating these machines, but I don't think there'll be a day, where we get on this call and say, we don't lose a dollar of revenue to great games I don't think we will have a day like that because.
Joe Stauff: Sort of the.
Joe Stauff: The nature of these operators that sort of bald faced willingness to flout the floor at the law of these operators I think there'll be a challenge for a while but you've seen in the numbers in Virginia substantial progress over 2024, I think you'll see.
Joe Stauff: More enforcement continued enforcement and probably a little bit further along in Kentucky.
Joe Stauff: So both have headed in the right direction I feel good about both.
Joe Stauff: But I don't make any assumptions.
Joe Stauff: That worked through with that game.
Joe Stauff: Yeah.
Joe Stauff: Thank you.
Joe Stauff: One moment please.
Speaker Change: And our next question comes from the line of Shaun Kelley with Bank of America.
Speaker Change: Sean Please check your mute button.
Speaker Change: Okay.
Daniel Guglielmo: And our next question comes from the line of Daniel Guglielmo with capital one Securities.
Daniel Guglielmo: Hello, everyone and thank you for taking my question, we look at U S hourly earnings data on a regular basis and so a bit of a reacceleration in wage growth at the end of this year.
Led to some investors asking about pricing power again, when thinking about your properties are there certain levers you can pull to increase prices or how do you think about that and potentially higher inflationary environment.
Dan Good: So Dan good morning, Nice to have you on the call you broke up for US just in the beginning what data where you're referencing.
Daniel Guglielmo: Alright. Thank you just broke up with us here in Louisville.
Speaker Change: Sorry about that Hey, U S hourly earnings data.
<unk> saw a bit of a reacceleration in wage growth at the end of the year.
Speaker Change: So I'd say that.
Speaker Change: We watch that kind of data inflation data wage earning data.
Speaker Change: I can't say that.
Speaker Change: Of all all the data points all the trends going on I can't say that we can isolate that and note any difference in any of the trends that are otherwise going on across our businesses, whether it be demonstrating pricing power for the Kentucky Derby.
Speaker Change: Or in wagering activities or twin on twin spires et cetera, I can't say that there is enough of a trend with the data you sided.
Speaker Change: <unk>.
Speaker Change: That it's discernible in the overall trajectories of the businesses, we're in but we'll keep our eye on that and.
Speaker Change: And we'll see if it's more noteworthy our demonstrable.
Speaker Change: Intelligence.
Speaker Change: From that data going forward.
Speaker Change: Thank you and our next question comes from the line of Ben Chaiken with Mizuho.
Ben Chaiken: Hi, Thanks for taking my question.
Ben Chaiken: Gave a lot of color on the Roes, which is extremely helpful. I Wonder if you could just kind of like dissect it stepping back a little bit specifically in Virginia.
Ben Chaiken: Presumably though some weather in January you also had the election that you kind of noted in the rose opening but maybe if we could think about like December January February whatever trends youre seeing today, just get a sense of the underlying trends in Virginia without some of the moving parts are noise.
Ben Chaiken: Thanks.
Speaker Change: Yes, thanks for the question Ben Good morning, so.
Speaker Change: Things are moving in the right direction. This is not our first rodeo we've opened a number of properties a number of significant properties in our in our family.
Speaker Change: Over the years so.
Speaker Change: I sit here today very pleased we have the right team we have the right processes.
Speaker Change: I never think about this as a one month thing or a one week thing or a two month thing.
Speaker Change: The trends are strong youre going to see growth in that property for an extended period of time youre going to see things improve when you open up a property like this you've got to get the people into your database you have got to get to know them. You've got to you got to get to learn there what they respond to in terms of player incentives.
Speaker Change: You have a just a bunch of work to do and our team is doing the work so.
Speaker Change: So all good the trends the trends are moving in the right direction.
Speaker Change: And I am pleased as I sit here today.
Speaker Change: Feel very good about what we're doing there and I look forward to talking to you all about this next quarter.
Speaker Change: Thank you.
Bill: I would now like to hand, the call back over to President and CEO Bill <unk> for any closing remarks.
Speaker Change: Thank you.
Speaker Change: I. Thank all of you for your interest in our company for being shareholders in our company or for considering being shareholders in our company. We work very hard to do what's right by you to make the good decisions in the tough decisions that drive shareholder value. So thank.
Speaker Change: Thank you for your time today. Thank you for your interest I look forward to talking to you in eight or nine weeks right before the Derby Derby $1 51, So take care stay warm out there and we'll talk soon thank you.
Speaker Change: <unk>.
Speaker Change: Ladies and gentlemen, thank you for participating this does conclude today's program and you may now disconnect.
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