Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2022 Second 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 be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Nick Zangari, Vice President, Treasury, Risk Management and Investor Relations. Please go ahead.

Thank you, Bontje. Good morning and welcome to our second quarter 2022 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2022 second 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 churchilldownsincorporated.com as well as in the website's Investors section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent reports on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and Form 10-Q are available on our website at churchilldownsincorporated.com. And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen.

Thanks, Nick. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. I will provide some high-level thoughts on our second quarter results and then share some updates on a number of strategic topics, including the P2E acquisition and our major capital investment projects. Marcia will then walk through our results in more detail and provide an update on our capital management strategy. After she finishes, we will open up the call for questions. First some thoughts on our second quarter results. Overall, we delivered the highest net revenue and highest adjusted EBITDA that we have generated in any quarter in the history of our company. We generated record net revenue of nearly $583 million, up 13% from the prior year quarter and a record adjusted EBITDA of $291 million, up 25% from the prior year quarter. While I will talk in a few minutes about the significant growth opportunities that we are currently executing on, it's worth pointing out the strength of our current portfolio. We were very pleased with the results for this year's Kentucky Derby. A crowd of nearly 150,000 fans watched Rich Strike and 80 to one long shot pull off an incredible victory. As you saw in the press release that we issued immediately following the Derby, we set all-time records for wagering on the Kentucky Derby Race, the Kentucky Derby Day Program, and the Kentucky Derby Week. TwinSpires also generated record handle on the Derby Day Program and on the Derby Race. It was also wonderful to see the many community and charity events occur again this year during the month-long celebration in Kentucky and all the theme parties and festivities that take place throughout the country leading up to Derby Week. The Derby truly was back in full force. We, along with our broadcast partner NBC, were extremely pleased with this year's 16 million average viewers with peak viewership of 19 million, our largest since 2017. The Kentucky Derby was NBC's most watched program since the Super Bowl in early February, ahead of every single primetime program, special event programming, and all other sports programming. Virtually all metrics point to the Derby's relative and growing appeal. Just as an example, the 16 million average viewership for the Derby was the same as the total for the Daytona 500, Indy 500, and Miami Formula One Race combined. Our Derby guests were thrilled with the new Home Stretch Club, which opened in time for Derby Week. We anticipate that our final investment in this project will be approximately $38 million, which is about $7 million under our original projections. This investment added 3,250 premium seats and provided a variety of new high-end experiences. We plan to continue our strong run of capital projects with the completion of the new first term project for next year's Derby. I will talk more about that in a few minutes. As we look towards the Kentucky Derby in 2023, we expect to see continued strong ticketing demand and feel a great deal of optimism for the future growth of our iconic events. Our Kentucky HRM venues also performed very well in the second quarter with all three properties. Turf City Gaming, Oak Grove, and Newport Gaming, delivering record revenue and record adjusted EBITDA. The success of our HRM facilities reflects our ability to find and develop great opportunities, build unique entertainment offerings with innovative new products, invest capital wisely, and successfully build customer demand. Turning to our TwinSpires business, revenue and adjusted EBITDA for TwinSpires Horse Racing business were down compared to the prior year quarter as more people continued to return to wagering in person at racetracks and other brick-and-mortar facilities. As we said previously, we believe that online wagering has stabilized at around 50% of the U.S. market based on the trends we've seen in the latter half of last year through the first half of this year. This represents a 12-point increase in online wagering penetration since 2019, but a decline from the pandemic period of 2020 and 2021. We believe online wagering will likely continue to grow its share of wagering in horse racing after we clear the tough comps from the pandemic quarters. The second quarter of 2020 handle for our online Horse Racing business was up 30% compared to the second quarter of 2019 and adjusted EBITDA was up 32%. I will share more about our strategy for this business in a few minutes. Our TwinSpires online sports and casino business was almost breakeven in the second quarter, reflecting the actions we have taken to quickly exit this business while maintaining the retail sports operations in our gaming facilities. We are still working to monetize our market access rights to other participants and we'll provide an update when our plans reach fruition in the coming months. Turning to our Gaming business, adjusted EBITDA from our wholly owned casino properties were down for the quarter compared to the prior year. Our Oxford and Calder casinos delivered growth in the quarter. However, we saw the impact from weaker economic conditions at our two Mississippi properties, our Fairgrounds property in Louisiana, and our Presque Isle Casino in Erie, Pennsylvania. Our Harlow's property in Mississippi also experienced increased competitive pressure in the quarter from the Pine Bluff Arkansas property. In addition, one of our most profitable OTBs, which is the home of Louisiana OTB, is still closed as a result of Hurricane Ida damage from 2021. We are planning to reopen Houma in October. We also saw modestly increased labor cost pressure across all of our regional gaming facilities. Regarding our equity investments, Rivers Des Plaines casino. In May, we completed the final phase of the property's expansion project with the opening of a new ballroom and event space. Rivers Des Plaines has added a total of 725 gaming positions in 2022 and is the first casino in Illinois to reach the maximum 2,000 positions permitted under state law. These new gaming positions are made up of 500 slot machines, 24 table games, and a 22 table poker room. We also added a new restaurant and a large casino bar. The property generated record revenue in the second quarter and adjusted EBITDA was up nearly 60% compared to the first quarter. While adjusted EBITDA was down slightly in the second quarter of last year, that was a very tough comp. We expect to see continued strong growth of Rivers Des Plaines in the second half of this year. Regarding Miami Valley Gaming, we completed the expansion of our outdoor gaming patio in June and the conversion of our buffet in July. The outdoor gaming patio has been expanded to allow for 196 additional games and an outdoor bar. We've also converted the buffet space into two new food venues while also adding an incremental gaming space. This will help the property's performance in the second half of the year. Marcia will share more details on our gaming segment performance in a few minutes. My larger point to you is that we understand our properties very well and have excellent teams in place. We are managing through the current environment, and even though we have significant growth coming as a result of our deep development pipeline, we remain laser-focused operators. We are watching our revenue trends carefully at all of our regional gaming properties and we'll be focused on taking actions to reduce our costs where appropriate in the coming months. Now, I will provide updates on the five areas of strategic focus for our team that will transform our company over the next five years. First, our major organic investments; second, P2E acquisition; third, our New Hampshire acquisition; fourth, Calder and Arlington land sales; and finally, our TwinSpires business-to-business strategy. Let's talk about our major organic growth projects, starting with our projects at Churchill Downs Racetrack. We've been working on the first term project, which as a reminder involves replacing 3,400 lower-priced temporary seats with 77,100 new covered premium seats, overlooking the first turn of the racetrack. We will have two distinct ticket offerings. The first area will add 2,000 premium dining seats inside a new 50,000 square foot first-floor hospitality venue. The second area will add 5,100 new covered stadium-style cushioned seats with all-inclusive food and beverage on two new elevated concourses behind the new seating intersections. Our projected $90 million investment in this project remains on track to be completed by Derby 2023. The work on the Paddock project is also well underway. Our projected $185 million to $200 million investment and the transformation of the areas underneath and adjacent to the historic TwinSpires remains on track for completion by the 150th Kentucky Derby in May of 2024. This project will enhance the overall experience for nearly every guest at our facility as we weave the best of 21st-century hospitality programming into the history and pageantry of Churchill Downs Racetrack. This project will reduce congestion by significantly improving the flow of guests in the Paddock and surrounding Plaza areas and will add over 3,600 new premium reserved seats and 3,250 new standing room only premium tickets, while also materially upgrading the amenities for over 3,700 existing premium reserved seats. When we are done with these two projects, we will have only transformed a portion of Churchill Downs Racetrack. There are many more opportunities in the years ahead to build out our facility to provide innovative and spectacular once-in-a-lifetime experiences for all segments of our guests, including those who today do not even have to reserve a seat and attend simply with a general admission pass. We believe these investments will afford the opportunity to generate consistent adjusted EBITDA growth with nominal levels of risk for years to come. Let's turn to our organic investments in new high-growth historic Racing and Gaming properties, beginning with Derby City Gaming. We are investing approximately $76 million to expand the game floor and build a new five-story hotel. The game floor expansion is on track to be completed by the end of 2022. We plan to open with 200 machines and have the capacity to add an additional 250. We will also add new dining and entertainment options. The construction of the 123 room hotel remains on track to be completed late in the second quarter of 2023. Regarding our planned $80 million investment in Derby City Gaming Downtown in Louisville, we've completed the necessary demolition work at the site and are in the process of renovating the building that we purchased on the corner of West Market Street and South Fourth Street. We anticipate opening Derby City Gaming Downtown in the second half of 2023. Turning to Turfway Park, we are nearing the finish line regarding our $148 million investment in this new HRM facility. We plan to open on September 1st. What an exciting entertainment venue for Northern Kentucky and the entire Tri-State area around Cincinnati. We will open with 850 HRMs and have the ability to expand within the existing footprint to 1,200 as demand ramps up. Other upscale amenities, including a sports bar and a large event center, will attract customers on race days as well as provide a great venue for large events at other times. Regarding the rollout of HRM and our OTBs in Louisiana, as of today, we have installed 171 HRMs and five OTBs and we are pleased with their performance to date. The timing of our HRM rollout has been impacted by supply chain challenges and contractor shortages as the state continues to recover from Hurricane Ida, which occurred in the third quarter of 2021. We plan to roll out a total of approximately 600 machines across 14 of our OTBs in Louisiana by the end of the first quarter of 2023. Next, our Terre Project in Indiana. We purchased the property for our Queen of Terre Project Haute Casino Resort in early June and held the groundbreaking for the facility on June 21st. We have finalized the site plan and are now completing the final design of the casino and 125 room luxury hotel. The casino will have up to 1,000 slots, 50 table games, a high limit gaming lounge, and a sports bar along with several food and beverage venues. We anticipate completing our $260 million investment in this facility in late 2023. Now, I'd like to provide an update on our acquisition of Pacific Peninsula Gaming Entertainment or P2E. As a reminder, we are acquiring a very unique set of assets that will provide significant growth through both existing and to be constructed facilities. The P2E acquisition also expands our geographic footprint and provides meaningful additional scale to our company at a very attractive multiple. We have obtained approval from the Virginia Racing Commission to acquire the Virginia properties. We expect to be on the Iowa Racing and Gaming Commission agenda for approval on August 25th, and we have submitted all of the entity and individual licensing applications to the New York State Gaming Commission. Although they have not yet provided guidance on when they will approve our application, we are working closely with the regulatory staff in each state. As Marcia discussed on our last earnings call, we have already completed the financing needed for the acquisition and therefore, we will be ready to close the transaction as soon as we obtain the remaining regulatory approvals. We are working very diligently on our integration plans, including participating in the development work for the Dumfries and Emporia projects. The Dumfries project consists of a $400 million investment in a 175,000 square foot state-of-the-art gaming facility that can accommodate 1,150 HRMs and is scheduled to open in the fourth quarter of 2023. It also includes a 102 room hotel that is planned to open in the first quarter of 2024. This is an extremely exciting project given its location in the densely populated Northern Virginia market. After completing the first phase, we will evaluate a further expansion of this facility up to 1,800 HRMs. The Rosie's Emporia development project is also underway. Emporia will add 150 HRMs and it's currently planned to open in the third quarter of 2023. We are also working on plans to enhance the racing at Colonial Downs in support of a Horse Racing Act and agricultural industries in Virginia. Based on Virginia law, we will be required to run one race day for every 100 HRM that are operational in the state up to the 5,000 HRMs we are currently authorized. Colonial Downs will hold 27 race days this year in conjunction with the approximately 2,700 HRM machines now deployed. Over the next two to four years, we expect to grow to 500 or 250 race dates as we reach 5,000 HRMs. We continue to analyze where to deploy additional HRMs in Virginia. We are prioritizing locations based on population, disposable income, and the likelihood of being able to pass a local referendum allowing for HRMs in the specified locations. We will provide updates on future earnings calls. We are on track to close P2E transactions before the end of 2022, subject to receiving the necessary approvals. Turning to New Hampshire, we anticipate closing on our acquisition of 100% of Chasers Poker Room in Salem, New Hampshire in the third quarter. Salem is approximately 30 miles from Downtown, Boston. We anticipate that we will finalize plans for our new HRM facility in the third quarter as well. Our current plans contemplate opening a new facility with up to 800 gaming positions, including HRMs and table games, with the potential to add more after we opened. We aren't ready to announce the schedule yet. We will provide an update on our next earnings call. Now, I'll provide a brief update on the status of our process to sell the excess land at our Calder and Arlington Park properties. We closed in June the sale of the 116 acres next to our Calder Casino for $291 million. We intend to utilize real property we have already purchased for Derby City Gaming Downtown and the Queen of Terre Haute casino, as well as real property we will be purchasing as part of the P2E acquisition and various 1031 exchange transactions to defer the tax on the gains from the sale of the Calder land. We're also still on track to sell the 326-acre Arlington Park property to the Chicago Bears for $197 million in the first quarter of 2023, pending completion of remaining conditions. Lastly, I will share some thoughts on our TwinSpires B2B strategy relating to wagering on horse racing. As we've stated in previous calls, we are exiting the online sports and casino business, but remain very focused on our profitable online TwinSpires Horse Racing business. It's a sophisticated data-intensive offering that strongly appeals to committed horse players. We believe fundamentally that horse racing content should, and will become available over time on sports wagering platforms to reach every wagering customer across the U.S. We intend to be a leading distributor of horse racing content, either directly to convert to customers of TwinSpires or under a B2B model that enables the online distribution of horse racing content to millions of new customers who have opened online sports wagering accounts. Given our expertise and extensive knowledge of pari-mutuel wagering on horse racing, we have the technical expertise, access to racing content, and technology to seamlessly integrate pari-mutuel wagering into existing third-party online sports wagering platforms. We will also provide user interfaces and ancillary services that may be necessary or desired by online sports wagering platforms. The strategy will also enable us to offer sports wagering sponsorships for the Kentucky Derby and to generate incremental content fees for Churchill Downs Racetrack as well as our other racetracks. Our TwinSpires strategy going forward will be to maintain and grow our existing TwinSpires platform while growing the distribution of online horse racing content to the millions of U.S. sports betting customers who have been acquired by sports betting platforms over the past couple of years. We anticipate that we will announce some key partnerships before the end of the year and will provide an update on our progress on our next earnings call. In sum, our existing portfolio of assets is performing quite well, and we remain focused on operational excellence, while also executing on our substantial growth pipeline. To reiterate, we grew adjusted EBITDA 25% last quarter over the prior year quarter and we're proud of that. We're also deeply focused and optimistic about our growth projects. With that, I will turn the call over to Marcia, and when she is finished, we will open up the call for questions.

Thanks, Bill, and good morning, everyone. I'll start with a few thoughts on our second quarter 2022 results and then provide an update on capital management. As Bill shared, we just finished another record-setting quarter with record revenue and record adjusted EBITDA. As you review our second quarter results, there are a few takeaways that I want to share with you. First, as Bill discussed, we were very pleased with the performance of Derby Week. Second quarter adjusted EBITDA for Churchill Downs Racetrack was up nearly $59 million compared to the prior year quarter, and up nearly $12 million compared to the second quarter of 2019. The margins from this iconic event continue to remain very high and are unparalleled in the gaming and entertainment space. Second, our three HRM properties in Kentucky delivered another strong quarter with both combined revenue and adjusted EBITDA up 22% compared to the prior year quarter, and up 8% on a sequential quarter basis. Why are these assets performing so well? These HRM properties are unique assets in the early growth stage of their lifecycle. Our team has built these properties to operate very efficiently as we build the customer databases and expand and evolve the game titles, and each of these HRM properties have the best mix of games that our customers want to play. Derby City Gaming, which is the most mature of our HRM properties given that it opened in September 2018, is dealing with construction disruption due to the expansion of the gaming floor and the build-out of the hotel. Despite this disruption, Derby City Gaming still grew top-line revenue by 11% and adjusted EBITDA by 8% for the quarter compared to the prior year. Oak Grove and Newport Racing & Gaming have similar strong growth stories during the second quarter. Oak Grove had net revenue up 33% and adjusted EBITDA up 43% compared to the prior year quarter. Newport Gaming continues to benefit from the expansion and redesign of the gaming floor, delivering over a 60% increase in net revenue and more than doubling its adjusted EBITDA for the quarter compared to the prior year quarter. We're very pleased with the early performance of our first wave of HRM and our OTBs in Louisiana and remain excited about the future expansion of our HRM footprint in Virginia, with the P2E acquisition and in New Hampshire with the Chasers Poker Room acquisition. Third, our team continued to make good progress on exiting the TwinSpires online sports and casino business and were able to minimize the drag on our financials in the second quarter. We now expect to eliminate approximately $36 million of loss from our adjusted EBITDA in 2022 compared to 2021, a $5 million improvement to our prior year projections. In other words, our TwinSpires's retail and online sports and casino business is expected to have a combined net loss of $5 million for the total year. This expectation does not include any upside for market access deals that are completed and realized prior to the end of 2022. Fourth, regarding our wholly-owned gaming properties, adjusted EBITDA for the second quarter was down $10 million and margins for our wholly-owned gaming properties were down five points compared to the prior year quarter. There are two reasons the second quarter of 2021 is a difficult comp for our wholly-owned properties and for our equity investments in Rivers Des Plaines and Miami Valley Gaming. First, in the second quarter of last year, COVID capacity and other restrictions were beginning to be lifted across all of our properties and economic stimulus motivated consumers to return to in-person entertainment venues. And second, the second quarter of last year, marketing of free play was lower than normal, given the higher level of pent-up consumer demand. In contrast, our margins for our wholly-owned gaming properties are up 4.9 points for the quarter compared to the second quarter of 2019, which is a better comp. In the second quarter of this year, our Harlow's property saw increased competition from an Arkansas competitor as fuel prices increased and as government stimulus has been eliminated. Adjusted EBITDA of our two Mississippi casino properties combined for the second quarter was flat versus the second quarter of 2019, despite the introduction of a major competitor in Arkansas in 2020 and economic weakness in the states driven by higher gas prices, higher interest rates, and higher inflation than our customers experienced in 2019. It is important to note that these two Mississippi properties are smaller properties that represent on an individual property basis, only about 2% of our projected 2023 revenue. As Bill discussed, we did see some economic weakness at our Presque Isle and Louisiana properties along with the impact of the continued closure of our profitable Houma OTB in Louisiana, as well as labor cost pressures across all of our properties in the second quarter. It is important to note that we do have business interruption coverage, so the impact of the hurricane on our Houma OTB is mitigated. We did see increased revenue and adjusted EBITDA at our Oxford and Calder Gaming properties. As we've shared in the past, our regional gaming strategy, a smaller gaming bets in different regions, along with our diversified portfolio of assets, helps to mitigate the impact of the economy on our overall financial results. Turning to our equity investments at gaming properties, Rivers Des Plaines generated record revenue in the second quarter and adjusted EBITDA was up nearly 60% compared to the first quarter. However, similar to our wholly-owned properties, the prior year quarterly comparisons were a difficult comp for the reasons I just mentioned. Rivers Des Plaines also incurred more marketing expense, additional labor costs, and other costs related to the opening of the gaming floor expansion in the second quarter of this year. We expect that these costs will normalize, while strong revenue growth will continue as a result of the expansion in the second half of this year. Miami Valley Gaming also had a similar outcome for the quarter with adjusted EBITDA up on a sequential basis, but down slightly against a tough second quarter 2021 comp, while executing their gaming expansion plans. As Bill discussed, our team is working to evaluate ways to drive additional efficiencies at all of our properties in the coming months. And last, regarding our capital management, we generated $233 million of free cash flow, up $12 million over the prior year quarter. We also had a significant inflow of cash from the sale of the Calder land, which generated net cash proceeds of $279 million in the quarter. We continue to expect to spend $60 million to $70 million on maintenance capital and $300 million to $350 million on project capital in 2022. We also repurchased nearly 322,000 shares in the second quarter at an average share price of approximately $191 per share, reflecting our belief in the long-term value of our shares. In June 2022, our bank and net leverage was 2.3 times, and our external net leverage was 2.4 times. Our leverage has continued to decline because of our strong operating results in the second quarter, which has continued to decline because of our strong operating results in the second quarter of 2022. We have strong liquidity with a combination of cash on our balance sheet, an undrawn $800 million Term Loan A, $1.2 billion from our recent bond offering in escrow, ongoing free cash flow generation, and 100% capacity on a $1.2 billion credit facility. We have adequate funds for the acquisition of P2E and Chasers as well as for the project capital investments we have announced. Even after these acquisitions and capital investments, we will still have significant revolver capacity remaining. In closing, we have a unique portfolio of assets and a tangible pipeline of organic and inorganic growth opportunities from which we will be able to generate a significant amount of revenue, adjusted EBITDA, and free cash flow in the coming years. We have the building blocks in place to make this happen. We remain committed to creating long-term shareholder value with increasing dividends and by strategically repurchasing shares of our stock over the long term. With that, I'll turn the call back over to Bill so that he can open the call for questions.

Thank you, Marcia. If anybody would like to ask any questions, fire away.

Thank you very much. Our first question is from the line of David Katz with Jefferies. Please proceed with your question.

Can you hear me well?

Yes. Hi, David. Good morning.

Hi. Good morning. So I wanted to talk about the B2B TwinSpires strategy. And it sounds as though you're taking a holistic approach TwinSpires and this is incremental to it. But any color you can give us on how you may have defined its scale or scope or a TAM around it? Just so we can get a sense for sort of how big you think this could be?

Well, we think it's a nice opportunity and it starts with work that others have done about what the ultimate size of the American online sports wagering market opportunity will be. And then it becomes a question of, well, what will horse racing's percentage of that be? Those are amorphous things to understand, but those are all very large potential numbers, but it's hard to predict for sure. What's important to remember for us is that we largely have not had access to this customer base because online wagering on sports wagering has generally involved recruiting customers who have familiarity with horse racing, who have been to the tracks before or that we have a chance to recruit in very narrow windows around our biggest races. So the notion that somebody else has gone out and recruited hundreds of thousands to millions of customers who may have started their journey into online sports because they were interested in a different sport, but then can bet seamlessly on a horse race when it's made available to them. That's an interesting opportunity that represents a significant expansion in distribution of a potential customer base that's new to us. So, how large it will be? How significant it will be? Those are questions for the future. What's important for us now is just to execute on a strategy where we solve the technology issues. We solve the process issues, the content issues, et cetera, to make sure that we can deliver a seamless product.

Understood. So the methodology we would use in coming up with a size is looking at sports betting TAM and then applying some reasonably modest percentage to that. I think that's methodology what you're implying, correct?

Yes. That's exactly right. Those are the building blocks on which you can then make some assumptions.

Okay. And separately, I wanted to ask about Richmond, Virginia. What you might be seeing or hearing. I know that there's a referendum going on there. What, if anything, is the latest?

Well, thanks for that question, David. We think the Richmond opportunity is a really interesting one. But there's not much more we can say today on this call that the original plan was to do a referendum in Richmond this November. There was language in the most recent state budget that was signed by the governor; however, that postponed that referendum to 2023. So, we're still wrapping around with our partners at Urban One, who really has the lead on this project. And with the city of Richmond, we're still wrapping our arms around the best path forward and how to constructively work with the governor and the legislature in Virginia to get this project to fruition. So we'll keep working on it. We think it's a really good project. There's lots of discussions going on about it. And that's really all I can say about it today, with the added kicker that we're going to work very, very hard on it over the next period of time to find a way to get it to fruition.

Perfect. Okay. Thank you very much.

Thanks, David.

Thank you. And our next question is coming from the line of Daniel Politzer of Wells Fargo. Please go ahead.

So I wanted to dive a little bit into the gaming performance in the quarter. Just additional clarity, if you can talk through the promotional environment. Was that confined to Riverwalk or are you seeing it across different properties? Any other property one-offs to think about going forward? And then also any sense of cadence through the quarter, April, May, June, and maybe some color on July trends? Thanks.

Thanks, Dan. Yes. So I first, when we talk about gaming, I'm going to draw the distinction between our HRM properties and our traditional brick-and-mortar gaming properties. Our HRM properties, without exception, show strong top-line growth, preservation of margins and just are in the early innings still of their growth story. For some of our more mature properties like the properties we have in Mississippi, we saw some pressure that was more noticeable that wasn't covered in other trends. So in Mississippi, we saw the entire market was soft, including for us particularly Riverwalk and Harlow's. So each property has a little bit different story. And when you talk about summarizing it, it gets hard to summarize because every property and every market shows a little bit of different characteristics. I think in general, I would say that take note that we were up 25% year-over-year for the quarter. A lot of these properties that we have are individually not that big. So when we see pressure in Mississippi or we see pressure in Louisiana, it's up against a large collection of assets and a large collection of EBITDA, not to mention the growth that's coming. So I see a lot of discussion in the market about these things about margins and environment and the economy. And what I'd say from my chair is, it's all being managed right now. It's all being managed. It's all having been around in a C-suite job all the way back since 2009 the last time we saw what may be a recession. It's manageable. It's not overly remarkable at this point. And it certainly isn't universal across jurisdictions. There are pockets of it, and we'll just manage site by site, not holistically, but site-by-site to figure out what's best for each property.

Got it. And just kind of pivoting to the build-out of the horse racing betting and content and the technology, I mean, are you envisioning multiple deals here in exclusive kind of a white-label product where you just provide the tech and the content? And then how should we think about the potential risk of cannibalization for your core TwinSpires product as you may be effectively syndicate that content to other operators? Thanks.

Yes, those are two important questions. Each online sports operator has unique requirements, with some needing more services than others. While some operators may have limited knowledge about horse racing, others may be quite familiar. We offer a range of services, including technology and content, and we will respond to potential partners' needs in terms of how we can collaborate. The goal is not simply to create a standalone white label ADW; instead, we aim to integrate horse racing into their broader sports total addressable market, which includes various sports. As you know, horse racing operates on a parimutuel basis, while sports markets in the U.S. typically offer fixed-odds betting. We can connect fixed-odds platforms to parimutuel wagering through partnerships, which we believe is key because it allows access to a larger pool of actual customers who use major sports wagering platforms. Regarding cannibalization, there may be some, especially among less engaged customers, but this is not a significant concern for us right now. TwinSpires primarily attracts committed players who value our advanced tools, content, and video offerings. It is a complex product that offers many customization options. For dedicated players who invest substantial time, TwinSpires presents a compelling choice compared to more basic, simplified interfaces that will likely dominate online sports wagering. We may see some cannibalization among newer customers who are less familiar, but that demographic does not drive TwinSpires' performance.

Understood. Thanks for all the color.

Thanks, Dan.

Thank you very much. And our next question is coming from the line of Shaun Kelley from Bank of America. Please go ahead.

Hi. Good morning, everyone. Thank you for taking my question. I just wanted to go back to the core consumer a little bit and the gaming operations and I know we focused a little bit on this already. But just if you could, would it be possible to kind of touch on two areas. One would be I think you called out Presque Isle as maybe seeing a little bit, and we've talked a lot about Mississippi understand some of the unique supply challenges there. But if that is expanding to Presque Isle or Louisiana, could you talk a little bit about that? And then the second part of that is, you've already talked about some cost mitigation efforts. One discussion point we hear a lot from investors is concerns that because the operating structure has been optimized so much coming out of COVID, there may be limited things that can be done to offset cost. It doesn't sound like you're as worried about that. So, maybe just talk about some of the areas you could do to mitigate some of the pressures you might be seeing on the top line? Thanks.

I'm going to address your second question first, and then I’ll ask my colleague, Bill Mudd, to discuss Mississippi and Presque Isle. In terms of cost mitigation in a declining revenue environment, it's true that there are always opportunities to optimize costs, though this isn't a current major concern for us. We approach expenses individually at each property, recognizing that it isn't a one-size-fits-all issue. Our teams have been resilient over time, and we analyze each market specifically rather than taking a broad view of economic trends. If we do face sustained pressures that impact our top line, we will adjust accordingly. Coming out of COVID, we navigated challenges with limited labor and marketing, but we still have strategies in place if needed. However, I’m focused on maintaining our current course as the situation evolves. Bill, do you want to add anything about Presque Isle or Mississippi?

Yes, I would just say that with both properties in Pennsylvania, and both properties in Mississippi, they probably have seen pressure from inflation on fuel and food more than our more affluent properties have seen. So we've seen that more quickly. And in Presque Isle, has had the luxury of more COVID restrictions than some of the competing properties in Ohio. And we're just going through the process of getting those players to come back to our site. And there's a player reinvestment there that we have to put in place, but we're seeing that migration coming back, and we'll continue to chip away at getting those customers back over the coming quarters. And then Louisiana, the big driver really in Louisiana more than anything was, we didn't have Jazz Fest there last year. This year, we had Jazz Fest, which closed the property for basically seven days during Jazz Fest from a slots perspective. So, feel pretty good about that property. And we're not seeing it creep too far into our other properties at this point.

Very helpful. Thanks for the color. Maybe just as a follow-up a little bit more on the constructive side. So I think Marcia gave some comments around the ramp-up that you're starting to see, with the expansion and Des Plaines. Just wondering if you could elaborate a little bit there. I think it sounds like there were a few one-time costs, not sure if we can call it those might have been in this quarter. But just help us give a sense more generally, how you're thinking about the ramp-up going there sounds encouraging?

It's very encouraging. I visited the property during construction and after the opening, and there were significant access issues for customers. As is typical with construction or expansion projects, it can be quite distracting for both the team and customers. Now that some of that disruption will settle, the team will have the chance to operate the expanded area and the full facility without the challenges of ongoing changes. We believe the results look promising, and the finish is excellent in a strong market. We are working to inform customers about the differences in facility access. As they become more aware, we should see positive outcomes. This is a familiar situation with expansions. The team managed it well, and we expect to see results in the second half of the year.

Thank you very much.

Thank you. Our next question is from the line of Joe Stauff of Susquehanna. Please go ahead.

Thank you. Good morning, Bill, Marcia, Bill. I had a couple of questions. Maybe on the HRM side. You sort of mentioned the preservation of margins that you realized on your HRM portfolio and we're talking Derby City, Oak Grove, and Newport realize you'll be launching a little bit over 1,000 machines during the second half of this year. But as I think about, I guess, my question is on margins for those kind of core three. Is it fair to say that you would expect margins to be pretty consistent in the second half relative to what you realize in the first half?

Yes.

Okay. Excellent. Then on Salem, New Hampshire. I apologize if you could repeat it. I think you had mentioned you would expect to open with around 800 machines. But wondering, are you comfortable giving us an assessment of how much higher in terms of the number of machines that you can have? And just a timing on or a reminder of when you would expect to be able to do that?

Sure. So first, I didn't mean to give such a short answer, but it was a simple answer. So I gave it. Yes, we feel really good about HRM and our margins based on the visibility into the future, the property will be a little bit different at Derby City Gaming in Louisville, because we'll have a hotel, but that ultimately is designed to drive activity from higher-end customers. And that's a very good thing to do. And so we might see a little tweak of the margin just as we operate a hotel, but generally, it's the answer to your basic question, how do we feel about our margins? We feel very good. The answer is yes. We anticipate maintaining them, as we can see into the future. With respect to Chasers, remember, Chasers, what we're buying there is one of the charitable licenses and that license is a robust business. But it's far too small a facility for our HRM expansion. So while we lock down and complete the process and planning around our HRM and table game expansion, which will be nearby but not on site, it's best to be indirect in our earnings comments about that while we complete the planning and approval process with the various authorities and landlords and regulatory people, et cetera. So we're not ready to fully disclose in our announced plans beyond what we said in the earnings comments, which is we hope to open with up to 800 machines, we think the market probably could support more of that. But it requires patience and careful working with the various city and other people who are involved to support the operation. So right now, the investor group ought to wrap their mind around a facility that's going to be 650 to 800 machines. But obviously, if we're successful, we would look to expand that if we could get the approvals and otherwise expand the facility. But currently, the way to think about it is 650 to 800. And in terms of timing, and I'm sorry, Joe, that was part of your question as well. I hope to have great visibility that we can explain on timing very shortly. But today, I need to be circumspect in my comments that we haven't completed some of the work to a sufficient level where we can talk about it publicly.

Understood. Thanks a lot.

Thank you very much. Our next question is from the line of Chad Beynon from Macquarie. Your question, please?

Hi. Good morning. Thanks for taking my question. In this inflationary, high inflationary environment, it's pretty evident that you could be a major price taker at the Derby. So outside of the benefit from Turn 1 that you expect to get at the 149. How are you guys or how should we think about same-store pricing opportunities in the reserved and premium seats? And how have you approached this during other years when CPI was at elevated levels? Thank you.

Yes. That's a good question. That's something we thought a lot and talked a lot about going into Derby 148, which is the derby we had in 2022. And it'll certainly be a topic as we approached Derby 149. We generally have a philosophy with our customer base where we don't just raise prices and leave it at that. We always try to enhance their experience, make things different, point out additional amenities, et cetera. and try to get our customers to feel good about their experience. And something like the Derby is a very emotional purchase, and it involves discretionary income. So it's really important that your customers, many of whom come year-to-year, feel very, very good about their purchase and feel like they get great value. So it's always a package for us we try to package it with new amenities and new changes. And a lot of times I think the success we've had in doing that has resulted in people not even necessarily appreciating that we have done that. So we're constantly making changes to the facility, you see that now with the Paddock project that we're working on, which will change the experience for every single person who comes through the front gate. Those are all opportunities we're in the process of offering that better experience, offering the different amenities, the better aesthetics, sometimes the pricing increases don't feel quite as noteworthy or as extreme. So as we enter into a high inflation or potentially high inflation environment, continuing high inflation environment, we have to look at our pricing structure. But it's certainly not the case that we're sort of brusque about that. We try to have a relationship with our customers and do it in a calculated careful manner. And I think the fact that we've been able to do that successfully is the reason that people don't tend to talk about it that much; they notice as much. So you can tell I'm not super comfortable talking about raising prices with Derby 1 on a telephone call like this, but it's something we have to think about. And we do. And it's part of our plan. It’s part of our process.

Thank you. And I'm sure our customers appreciate that. And then in terms of capital allocation, a lot of ins and outs just in terms of money being spent and money coming in from asset sales, you were purchased a decent amount of stock in the quarter. How should we think about this, over the course of the next six to 12 months, given the other commitments with the CapEx, and then, hopefully, the inflow of the asset sale? Thank you.

Yes. Our capital planning process, I think, is really sophisticated and a tribute to Marcia, who leads it. So we're pretty detailed and thoughtful and very focused on allocation of capital over the next 12 months, 24 months, 36 months, and beyond. So we look at our availability. We look at the projects we have. We look at our stock price. We look at dividends. We look at all those things and we compare and contrast, and generally over the past, you've seen that we have thought a good use of our shareholders' capital has been to consistently repurchase stock. So that philosophy of willingness to do that hasn't changed. And what we'll do from now going forward is continue to evaluate the market that we're in, and the opportunities that we have and make decisions on the balance across all of the things that we should and can spend our money on what is the appropriate balance. So, no change in philosophy, but as to what we will exactly do that will depend on some factors, some of which we've talked about, and some of which will remain behind closed doors. But there's been no change in our philosophy, and generally what we've done, we've been very pleased that we've done it.

Thanks, Bill. Appreciate it.

Sure.

Thank you. I would now like to turn the conference back to Bill Carstanjen for closing remarks.

Yes, thank you, everybody. I really appreciate the questions. Those were really helpful questions today. Thanks for your interest in our company. Thanks for supporting us. We'll try to do well by your confidence in us. We're really optimistic about what happens over the remainder of this year and beyond, despite the fact that we're in an economy where people don't have as much confidence about the economy, as they've had previously. We feel really, really great about our company and really, really great about our opportunities. So it's full speed ahead for us. So thanks for your confidence in us. We'll do right by that and we'll talk to you next quarter. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.