Good day, ladies and gentlemen, and welcome to the Churchill Downs Inc. 2023 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Phil Forbis, Vice President, Financial Planning and Analysis.

Thank you, Andrew. Good morning, and welcome to our Third Quarter 2023 Earnings Conference Call. After the Company’s prepared remarks, we will open the call for your questions. The Company’s 2023 second quarter business results were released yesterday afternoon. A 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 yesterday’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, Phil. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer, Marcia Dahl, our Chief Financial Officer, and Brad Blackwell, our General Counsel. I will share some high-level thoughts on several strategic topics and then Marcia will provide insight on our financial results as well as an update on our capital management strategy. After she finishes, we will take your questions. We delivered record third-quarter net revenue and record third-quarter adjusted EBITDA. We also delivered record third-quarter adjusted EBITDA across all three of our reporting segments. In addition, we opened a new HRM entertainment venue in Virginia and completed the strategic acquisition of Exacta. These are strong results, particularly in a macro environment that compares unfavorably to the prior year. Looking forward, let's start with an overview of our preparation for the 150th Kentucky Derby next year and the projects we have underway at Churchill Downs Racetrack. We have made significant progress on our transformative paddock project as well as our Jockey Club Suites renovation project. Both are on budget and will be completed prior to the end of April, just in time for Derby Week and Kentucky Derby 150. This is a testament to the experience and dedication of our team members who have carefully planned and are executing these highly impactful capital projects. There are other compelling opportunities to grow the Kentucky Derby and Churchill Downs Racetrack to provide extraordinary once-in-a-lifetime experiences. Our commitment to investing in our historic asset reflects our proven ability to generate consistent adjusted EBITDA growth with nominal levels of risk through various economic cycles over the long term. Our focus right now is delivering these two major projects and a unique and spectacular Kentucky Derby 150, which, when done as we anticipate, will then lead to the projects of the future. It's worth noting that on December 6, the same day as the grand opening of Derby City Gaming Downtown, we will celebrate 150 days until the 150th running of the Kentucky Derby. Stay tuned as we unveil exciting details in the coming months as we count down to the first Saturday in May 2024. We are significantly ahead of the sales pace for any previous year. We have only a few suites left and almost all of our existing premium seating is sold. Our team has also done a great job selling the new paddock sections. New areas are always the hardest to sell in the first year because it's sight unseen and without the advantage of previous customer testimonials. In this case, the new areas are moving briskly in the excitement and anticipation of Derby 150. On that note, if you are planning to attend next year's Milestone Derby, I encourage you to purchase your tickets right away while there is still some inventory. Turning to our HRM entertainment venues, first in Kentucky, Derby City Gaming delivered all-time record adjusted EBITDA in the third quarter. The expanded gaming floor, new hotel, and steakhouse propelled this state-of-the-art venue to new heights. Oak Grove has also delivered record third quarter adjusted EBITDA as we continue to further penetrate the expansive and growing Nashville market. We still see lots of growth before we approach this property's ceiling. Turfway Park in northern Kentucky, Cincinnati region, marked its one-year anniversary at the beginning of September and continues to improve at a highly competitive market. This property is not yet where we expect it to be, but we are encouraged by the steady improvement. Our two smaller Kentucky HRM properties, Newport and Ellis Park, are both performing strongly and contributing nicely as we had expected to our Kentucky HRM operations. HRM entertainment venues across Kentucky have begun to benefit from the passage of legislation banning gray games, which became effective on June 30 of this year. This ban essentially makes operating a gray game or skilled game slot machine in a bar, restaurant, truck stop, tavern, or other facility a criminal offense. It's hard to quantify the impact because there are other variables at play, but the American Gaming Association estimated that there were over 12,000 illegal games in the Kentucky market. We believe most of those have now been turned off and are no longer operating. Our Kentucky HRM venues should also benefit from additional foot traffic related to the opening of the retail sports books at each of our properties on September 7. The direct EBITDA contribution from sports betting on-site is relatively modest but certainly positive and is included in our Twin Spires segment. Derby City Gaming Downtown, our sixth Kentucky HRM entertainment venue, is nearing completion. As I mentioned, the grand opening is in early December. This facility will focus on capturing the downtown Louisville market driven by the adjacent convention center, downtown sporting and other events, urban tourism, and urban residence. We will have approximately 500 HRM machines along with a sports bar for retail sports betting and of course several derby-themed entertainment areas including a cigar and bourbon speakeasy and a spectacular wine bar. We are finalizing design and construction plans for our seventh Kentucky HRM entertainment venue on a 20-acre site just east of Owensboro, Kentucky. This will be the primary HRM facility associated with the Ellis Park license. As a reminder, Owensboro is the fourth largest city in Kentucky and the economic and commercial hub in the region. This greenfield site sits right off highway 60 in an area that is growing with new residential and commercial developments resulting from road work and infrastructure improvements over the last 10 years and great access to Indiana because of the bridge over the Ohio River just a few short miles away. We are targeting to open in the first quarter of 2025 with a total spend of $100 million to $110 million. We will provide more definitive timing and cost estimates on our year-end earnings call in February, at which point we will have already begun construction. Turning to our HRM entertainment venues in Virginia, we opened our seventh Rosie's HRM site on September 26 in Emporia near the North Carolina border right off Interstate 95. We are quite pleased with the early results from this new 150 HRM $30 million property. Our goal is to utilize all 10 of our potential Virginia HRM licenses and deploy all 5,000 HRM machines permitted under the law as quickly as practicable. Emporia takes us to approximately 2,750 machines. We are making great progress on our Dumfries HRM venue, which represents a significant expansion for us in the state. As a reminder Dumfries is in northern Virginia approximately 30 miles south of Washington DC. Our site is right off Interstate 95 with fantastic access and visibility from the highway. We will be transitioning from our existing Dumfries HRM location with 150 machines to our much larger facility. We plan to open phase one with at least 1,150 HRMs over 2,500 parking spaces, a 102-room hotel, several bars and restaurants and an event center. We expect to be open in the second quarter of 2024. During the third quarter we launched a referendum campaign in Manassas Park to win approval to open our eighth HRM entertainment site with approximately 250 HRMs. Manassas Park is also in northern Virginia approximately 30 miles west of Washington DC and 20 plus miles northwest of Dumfries. We are working hard with the city and assuming the successful passage of the referendum by the voters on November 7, we will be in a position to immediately pursue execution of this project in an existing commercial center. There are about 9,000 registered voters in Manassas Park, making this a significantly smaller exercise than the Richmond referendum, which I will talk about in a few minutes. This community is well situated in proximity to a large population, making it an exciting opportunity for us. As many of you may have seen in the last week, the Virginia Supreme Court just overturned the injunction that had allowed gray games to continue to temporarily operate in the state despite existing law recently further strengthened by the legislature, stating clearly that gray games are illegal gaming activities. We think the ban will benefit the Commonwealth of Virginia, its citizens, and all of those who play by the rules, pay their taxes, submit to regulatory oversight, and invest to create jobs and significant capital projects. We think that the elimination of gray games in Virginia will have a meaningful impact on the performance of our Virginia HRM properties over time as the games are removed, a process that we believe will begin in earnest sometime next month. Switching to New Hampshire, we are not yet ready to provide details related to our Salem HRM plans. We are confident that we will create a unique HRM entertainment offering for the Salem area and the Boston suburbs that also will be an attractive long-term investment for our shareholders. We remain very excited about Salem and committed to doing it right. That commitment has required us to show a lot of patience with regard to planning, but we are getting close to being able to share a substantive update. I look forward to doing so soon and am very optimistic about the contribution this project can make to our Company. As our performance over time has demonstrated, our disciplined approach to our HRM investments has led to an excellent return on capital, and we will remain disciplined as we expand further in each of our key markets. Regarding our Twin Spires segment, we closed the Exacta transaction in late August. As a reminder, Exacta is a major provider of central determinant systems and other related technologies to historical horse racing operations across the country. Our Exacta team will continue to service its growing portfolio of third-party HHR operators in Kentucky, Wyoming, and New Hampshire. Also, by acquiring Exacta, we are able to reduce costs for our Virginia HRM operations and further diversify the gains at our legacy Exacta HRM facilities in Virginia, as well as at Ellis Park in Kentucky. We believe this will improve our top line and our margins. The Exacta acquisition further supports our strategic focus on being the industry leader in the development, management, and services for high-growth, high-margin HRM entertainment venues. We will continue to improve the Exacta technology platform and pursue the development of HRM-based electronic table games. Once developed, we intend to work with regulators within the legal and regulatory parameters in each jurisdiction to get them deployed. Our strategy with respect to our core Twin Spires business starts with continuing to offer a best-in-class wagering experience for horse racing players, particularly committed VIP players. We remain very pleased with our ability to grow and retain our cohorts of strong players. And variations in their handle that we have seen in the third quarter and over the course of 2023 have been driven substantially by reductions in the racing calendars and removal of races off the grass to the dirt, mostly as a result of unusually severe weather, including both extreme heat in some cases and heavy rains in others. Our third quarter saw total active players increasing 8% over the prior year's third quarter, while Twin Spires' retail handle was down 3%. Total handle on U.S. racing was down 7%, driven by a 7% decline in U.S. race days. We are pleased with how our business has performed through the disruptions of 2023. We will continue to invest in distinguishing our customer offering from competitors to retain and grow our online players. This is a strong business. In addition, we are focused on the B2B opportunities around providing horse racing wagering technology and access to horse racing content to online sports wagering companies. We are proud of our initial partnerships with FanDuel and DraftKings. We believe we have only begun to scratch the surface of this important area for growth. We believe introducing horse racing to a broader audience of online sports wagering customers who have already been acquired by the various sports platforms is great for Twin Spires and great for the game of horse racing. You will see this growth opportunity unfold over the coming quarters. In the meantime, you see now the continuing strength of our current results. Turning to our gaming segment, first, our Terre Haute Casino and Resorts in Indiana. We can see the finish line. Construction is progressing well, with a planned grand opening for the casino and hotel in early second quarter of 2024. With regard to our pursuit of the last of the five full Class III casino gaming and hotel resort licenses available in Virginia, we are conducting our campaign to win a citywide referendum in Richmond, Virginia on November 7. We have a 50-50 joint venture partnership with Urban One, a public Company focused on radio and digital media, to jointly pursue this project. This is a wonderful opportunity to bring jobs, capital investment, and entertainment to the city of Richmond. If and when this referendum passes in a couple of weeks, our joint venture is committed to invest over $560 million. In addition to the thousands of construction jobs, we will create approximately 1,300 permanent, good-paying careers and generate an estimated $30 million of annual tax revenue for the city while creating a world-class dining, gaming, and entertainment venue with a 55-acre park. We have selected a great site location on the south side of Richmond just off of Interstate 95. This is an impactful project for the community, and we hope to convince the people of Richmond to vote for it. We will let you know the outcome of this referendum and the one in Manassas Park after the November 7 vote. With regard to the rest of our gaming segment, the modest economic headwinds we first identified in late March and early April, such as inflationary pressures on our customers, continue to affect the segment generally. As I believe you will agree, though, our team continues to manage through this very effectively. The EBITDA decline in our equity investments was driven entirely by our rivers property. Half of this decline resulted from an unusually low table games hold rate for the quarter. Our table game drop actually increased over the period, which we find encouraging. While we are seeing the impact of new competition entering the market, it has only been on the slot side, and thus it has been less than we expected. We are encouraged and will keep you posted. In summary, the third quarter was another strong quarter for us with record financial results. Our team continues to deliver across all of our segments. We have demonstrated that we can effectively integrate a transformative acquisition while also executing on numerous organic growth opportunities across our expansive footprint. And we have much more to do and share with you in the future. We believe there are many growth opportunities remaining for us to pursue in the coming years. Whether it be further investment in our flagship asset, the Kentucky Derby, our new investments align with our long-term strategic plans. We believe these growth plans will drive a material increase in adjusted EBITDA and free cash flow while we maintain one of the best balance sheets in the industry over the long term. With that, I will turn the call over to Marcia, and then we will take your questions.

Thanks, Bill, and good morning, everyone. As Bill shared, we delivered record third quarter net revenue and record third quarter adjusted EBITDA. Our businesses collectively generated a 49% growth in revenue and a 34% growth in adjusted EBITDA on a quarter-over-quarter basis. I will start by sharing a few insights on these financial results and then provide an update on capital management. First, regarding Churchill Downs Racetrack, racing returned for our September race meet, and our team, with the support of the horse racing industry, ran a successful and, most importantly, a safe race meet. During the third quarter, we did have a small impact from the shift in racing operations to Ellis Park for the first few days of July. We also moved the Arlington Million Race Day to our Colonial Downs Racetrack in Virginia in August. Outside of these two items, the property performed as expected for a non-derby quarter. We will hold one final race meet for the year at Churchill Downs Racetrack beginning this Sunday and running through Thanksgiving week. Second, in five short years, our team has built a unique and diverse portfolio of brick-and-mortar and technology-related HRM assets that expand across five states. These HRM-related assets generated nearly $277 million of adjusted EBITDA in the first nine months of the year. Our HRM properties in the live and historical racing segment contributed nearly $49 million of growth in adjusted EBITDA for the third quarter compared to the prior year quarter. Our Kentucky HRM properties collectively grew adjusted EBITDA 26% compared to the prior year quarter as Derby City Gaming and Oak Grove once again delivered strong growth with record results. Turfway recently passed its one-year milestone and is beginning to see benefits from live entertainment bringing new customers to the property. Our Virginia properties performed well in the third quarter with margins collectively at 47%, excluding the impact of horse racing at Colonial Downs Racetrack during the quarter. This does reflect a small benefit from the lower exactor rate that we put in place on September 1 for HRM machines that utilize their technology. We expect to improve the top line and margins over the long term for our Virginia HRM properties as we enhance the gaming floors. We also believe we will see top line and margin improvement at all of our Virginia HRM properties over the long term from the ban of gray games. Third, turning to our Twin Spires segment, Twin Spires revenue and adjusted EBITDA increased in the third quarter compared to the prior year quarter as a benefit from the addition of the exacted business along with the continued growth of our B2B horse racing business and improved sports and casino economics more than offset the slight decline in thoroughbred horse racing handle. Handle declined primarily because of fewer thoroughbred races from the cancellation of race days at certain racetracks. Our B2B expansion related to our horse racing technology and settlement services and our continued pivot out of the direct online sports and casino business helped to generate positive growth and adjusted EBITDA compared to the prior year quarter. Our margins for the Twin Spires segment did return to more historical levels in the third quarter as we expected. And fourth, regarding our gaming business, we once again realized significant contributions in the third quarter from the addition of the New York and Iowa properties acquired in the P2E transaction. Our Pennsylvania gaming revenues were impacted in third quarter by the exit of the NEMA management agreement at the end of June and the continued competitive impact on a Presque Isle property from gray games and iGaming. All of our properties are performing relatively well despite the impact of the inflationary trends and higher interest rates. Our operating teams continue to demonstrate their ability to maximize operating results in a challenging market environment. Our third quarter same store wholly owned casino margins were down slightly more than one point compared to the same period in 2022, excluding the impact of business interruption insurance claim recoveries. Our margins on a comparable basis were up 4.0 points for the third quarter compared to the same quarter in 2019, reflecting our retention of approximately half of the margin expansion benefit from the post-COVID peak in 2021. Turning to capital management, we generated $446 million or $5.82 per share of free cash flow during the first nine months of the year. This is up $59 million or $0.80 per share over the same period in 2022. This increase over the prior year reflects the strong cash flow generated from our diversified businesses that was partially offset by higher interest rates and higher cash paid taxes due to a $33 million non-recurring tax refund in 2022. Regarding maintenance capital, we spent $52 million in the first nine months of the year and now expect to spend $75 to $85 million in total for the year. Regarding project capital, we spent $446 million in the first nine months of the year and continue to expect to spend between $575 and $675 million in total for the year. The capital investments that we have made in the past few years continue to collectively deliver strong cash flow returns and we expect the investments we are making in 2023 and beyond will also provide strong cash flow returns for our investors. Our bank covenant net leverage at the end of the third quarter was 4.1 times consistent with our expectations. This reflects the acquisition of Exacta, our organic investments, and $37 million of share repurchases during the third quarter. We expect our bank covenant net leverage to remain in this range through the end of this year. We then expect our bank covenant net leverage to begin to decline in 2024 and 2025. Regarding our dividend, our board of directors approved a dividend of $38.2 per share, which is 7% higher than last year's dividend. This dividend represents the 13th consecutive year of increased dividends per share for our Company. Overall, we are very pleased with the performance and overall results that our team has once again delivered. Our diversified portfolio of unique assets and our organic investments, along with our strong balance sheet, provides a solid foundation for growth for years to come. We remain committed to creating long-term shareholder value with increasing dividends by strategically repurchasing shares of our stock. With that, I'll turn the call back over to Bill so that he can open the call for questions.

Thanks, Marcia. Okay, everybody, we're ready to take your questions. Fire away.

Thank you. Our first question comes from David Katz with Jeffries.

Hi, morning, everyone. Marcia, I wanted to just start off with what you're seeing in the landscape with respect to the cost side of the equation. The revenues, obviously, we see public numbers, but we have started to hear this earnings season some mixed commentary with some talking about cost side and others a bit less so and I just wanted to get your perspective on it, please?

Good morning, David. It's Bill. I'll go ahead and take that one, Marcia or Bill. Feel free to jump in after I answer it. Sure. We're in an economy where you're seeing inflation. However, having been around for 18 years working in this Company and been a part of the gaming experience from the very beginning it’s all very manageable right now, so I feel very confident in our team and their abilities to watch all the details, watch all the corners ahead and just manage effectively. So I don't think there's much cause for concern in our margins. I think we demonstrated that in this past quarter. I think some of these pressures that others are hinting at or that you're referring to are things we've been dealing with for more than a quarter at this point. And I think it's not a big part of our story. We're built to process through that and manage through that. I don't see it as being materially important to us in the current environment.

Okay. And as my follow-up, if I may, just thinking about kind of the path forward for leverage and where we are, have we fair to say that we were sort of peaking now and we should think about ratcheting down going forward or how does that roll?

Well, we generate a lot of free cash flow. So right now we're in the midst of a great deal of construction that you'll see operational next year or turn into operational projects next year. So we generate a lot of cash flow and that cash flow, how do we use that? We use it to invest in growth projects. We use it to pay down debt. We use it to reinvest in our shareholders. We use it for a variety of things. But the cash flow picture has never looked better. And it gets better as we move forward because some of where our cash flow is going right now, some of what's caused us to have the four-point-one times leverage that starts to generate cash flow next year as these projects come online.

Okay, thank you.

Thanks, David.

Thank you. One moment, please for our next question. And our next question comes from the line of Daniel Politzer with Wells Fargo.

Hey, good morning, everybody. And thanks for taking my questions. So I wanted to follow up on the gray market commentary that you guys gave in their prepared remarks. Can you maybe talk about the enforceability of this in Virginia versus Kentucky? And, maybe can you put some parameters around how big you think the gray market is in Virginia and how confident that you are that this ruling basically is, becomes permanent versus more of a temporary type measure?

First, good morning, Dan. Good to hear from you. I'll talk about each market individually and then compare and contrast them directly. So in Kentucky, the machines have largely been turned off. We haven't done a survey where we've gone to every state and every site in the state to confirm every machine is turned off to say with absolute certainty. But certainly it's the law of the land. And our understanding of the landscape out there is there is substantial and material compliance with that. So they're turned off now. There is a court case where the manufacturers are challenging the law, but the machines have been turned off in the near term. The American Gaming Association had reported there were about 12,000 machines in the jurisdiction. And over the last couple of months, those have been turned off. Gray games were a relatively new thing in Kentucky compared to Virginia. It was just a newer, newly developed market that was expanding rapidly compared to Virginia, where we've seen a great deal of expansion. But we’ve also seen entrenched gray games for a period of time. So there in Virginia, an injunction had been granted by a lower state court that have allowed the machines to remain operational while the court case worked its way through the court system. Recently, during the quarter, the Supreme Court reversed the lower court, thus requiring that the law be in effect now and that gray games in accordance with the law are thus illegal. So the attorney general provided guidance that some time was necessary for the local outlets to have these machines to come into compliance. Therefore, starting sometime in mid-November, we expect enforcement to start to happen. So it is the law of the land. It is clearly the law. The Supreme Court has spoken on it, and we expect you'll see enforcement. But it's a big state. There are a whole lot of gray games in Virginia. I think it's fair to say that we don't have an accurate count because they were continuing to expand so rapidly. So, it'll take a bit of time to get them turned off. But to be clear, to answer your question very directly, there is no legal authority at this point permitting these machines to be turned on. And we expect we expect enforcement to catch up with the reality of how the law works. So comparing the two jurisdictions, a much more entrenched market in Virginia versus Kentucky. Kentucky is a little bit ahead on the odyssey of gray games, ironically, though, and that they've already been substantially turned off. But Virginia, we expect to catch up over the next month or two.

Got it. And maybe as a related follow-up on Virginia, I mean, we get the kind of state reported data. The HRM growth has turned negative in the past few months. I mean, how much of this would you attribute to maybe the gray market versus a softening consumer or competition or something else altogether?

Oh, sure. Yeah. So there was some decline in the statewide reported numbers in September in particular. About 90 percent of that is our Hampton site, which was always anticipated and expected by us. It's been impacted by the opening of the Portsmouth casino in the area. So Virginia remains a very strong jurisdiction. We saw some impact at our Collinsville site, which is very small. That was impacted by the new Caesars project. But the bulk of the impact really was seen at Hampton, which is a large site for us because of the Portsmouth casino in the area. But also, as we've made clear in a couple of forums and certainly with authorities in Virginia, there was a pretty rapid expansion of gray games and the quality and quantity of gray games in Virginia over the course of 2023. And so that's something that we think is going to be reversed now as we move into the next quarter. But ultimately don't lump all the sites in the state together because there was one site that was hit in particular by a change in that market. And that was Hampton.

Got it. Helpful. Thanks for the commentary.

Thank you. One moment, please, for our next question. Our next question comes from the line of Barry Jonas with Truelist Securities.

Hey, guys, good morning. Bill, maybe I just wanted to ask you about the macro impact you're seeing in the portfolio, more focused on any segment of the database or geography is more spent per visit or impacting visitation? Thanks.

Generally, when I think about the future of our Company, I don't think the macro environment's a big part of our story. I think we're managing through it really well. But if I had to draw any specific commentary, and again, I don't claim I don't believe it to be really significant to our story and our growth trajectory. There's more weakness in the unrated play than there is in the rated play. The rated play still looks pretty good, but maybe a modest decline in trips. But the impact, if it's worth mentioning at all, has really been more on some weakness in the unrated play.

Got it. That's really helpful. Just as a follow up, I wanted to ask about Exacta, you talked about a six and a half multiple on the deal before synergies. Now that the deal is closed, I guess you have any you have a better sense about what the synergies could be? And is there sort of an upside case for what the ultimate transaction multiple may wind up to be?

I really love the Exacta deal. I think it was a really smart deal for our Company to do. It's working according to our expectations right now. Recall that Exacta had exclusivity and exclusive in Virginia, and we bought it when there were 2,600 machines deployed in Virginia we're going to increase that to 5,000. Now, we've elected to waive the exclusivity to have some Ainsworth products in there, too. But ultimately, we're going to see a lot of impact from Exacta, not only based on the current environment, but based on the growth of the application of the Exacta system, not only in Virginia as we increase the number of machines, but also as we roll out Exacta and the performance of our third-party customers increases both a number of customers and the quantity of Exacta product that they use. So, I think it's a real growth, a really strong growth business in and of itself. But strategically, it's really hugely important for us not only because of the impact on our cost structure, but our ability to work with and control and direct the development of that technology to improve it, always driven towards an eye on our margins as we invest in HRM facilities across the country.

Great. Thanks, Bill.

Thanks, Barry.

Thank you. One moment, please for our next question. And our next question comes from the line of Chad Beynon with Macquarie.

Hi, good morning. Thanks for taking my question. Bill, I know there's probably not a ton you can expand on beyond what you've said regarding 150. But given the strong advanced commitment that you talked about with Patek, with premium, you've talked about the experience and what people are paying for. What does this kind of indicate for future years? Meaning we're all laser focused on kind of weekly and monthly consumer trends in different cohorts. And clearly, given the commitment that you've seen for 150, it kind of shows that that cohort feels pretty good. So one on the fundamental growth and then secondly, kind of how that feeds into potential expansion at the property? Thanks.

Sure. Thanks, Chad. Thanks for the question. So, I've been so encouraged by the early sales of tickets. It's been certainly in excess of my expectations. And that allows us to focus on execution, execution, execution, get the project built on time, meet and exceed the customer's expectations and deliver a spectacular Derby 150. I think it's the case that we're going to be very happy with the economics of 150. But the team is focused not just on the economics, but on delivering a great experience, because that experience is part of the foundation for future projects. We've had great momentum over the last decade plus of delivering successful projects. And every time we do that, that's a foundation for us to pursue additional projects that give us the confidence and our board the confidence that we should continue investing in the Kentucky Derby. For Derby 150, we have two significant projects. We have, of course, the paddock project that will impact the experience of all guests that come to the property, it really will absolutely transform the physical appearance of the front side of the racetrack. And then we have the renovation of the Jockey Club suites, which will impact directly the customer experience of a large group of customers that sit in those suites. I feel very confident that we're going to deliver the economics associated with that. But I don't want to take anything for granted around execution. Bill Mudd and his team, they are laser-focused on making sure we hit our timelines, and that we think through all the wrinkles and intricacies of the experiences these customers are going to have. Because if we do that well, if we do that as we intend to do it, that is the foundation to keep our momentum going with additional significant capital projects.

That's great. Thank you. And then just on HRM medium term, Marcia, you talked about the healthy growth there, obviously your position with respect to states or licenses within states that you don't currently own and operate. Are there still opportunities to expand HRMs beyond what you've laid out in the near term? Is this something that could be part of the back half of the decade in terms of growth in that arena? Thank you.

Well, Marcia, if you don't mind, I could take that one. So yeah, there are states that are considering HRMs. It's part of the expanded gaming discussion in a number of states. And previously, we didn't always focus on all those states because we didn't see a brick-and-mortar operator opportunity for ourselves. Now we look at states from more than one perspective, not just as being a direct brick-and-mortar operator, but also as being a technology and services provider. So, I think it's not in dispute that you'll see a number of states continue to discuss potentially passing HRMs. There are also current opportunities in states that have passed it for us to further expand the footprint of Exacta. So that's a new tool. That's a new part of our toolkit that we're really happy to have because we follow the development of HRMs everywhere in the United States they were considered. But this gives us incentive to invest and focus politically on states where we might have more than one type of way of participating in successful legislation. But even before we get to successful legislation in additional states, there are pockets of growth opportunities in states for us that have already passed HRMs, and we'll be focused on that too.

Great. Thank you very much.

Thank you. One moment, please for our next question. And our next question comes from the line of Jordan Bender with JMP Securities.

Great. Thanks for taking my question. I want to stick with kind of the last question as well on HRM side. So, it seems like tables could be a pretty big opportunity for the Company. And as we sit here today, do the regulations or the way that the laws are written across the states you guys operate essentially allow you guys to go live with tables as they sit? And then I guess off the back of that, were these facilities or the gaming floors across all these HRM facilities built for tables or would you anticipate maybe incremental investment across these gaming floors to really build out to put in these tables? Thank you.

Thanks for the question, Jordan. Really two predicates before we get to individual site expansion plans. One is we have to develop the technology and we're in a partnership with a Company that between the two companies, a lot of capabilities to do that. Therefore, we have to develop and perfect the technology. And then we have to work within the parameters of the states where HRMs are permitted. I don't want to short-change that piece of the puzzle. We would need to work with the regulators in those jurisdictions and make sure everything falls within the framework and parameters of what they're comfortable with. So those are two significant predicates that need to be addressed before we can really talk expansion plans. But I'm confident that we're going to face both of those challenges and I'm confident that while things probably won't always go exactly the way we hope on exactly the timeframe we hope, I do think we'll see success conquering those or meeting those challenges. When it gets to then deployment, it'll depend on the site. As I know you have, if you follow our Company over time, we'll do a lot of testing. We'll see what works. Different markets will probably show different appetites. Therefore, we'll take it on a facility-by-facility approach based on data generated from that region. So, it'll be a different answer for each of our properties and a different answer between jurisdictions.

Great. And then for my follow-up, I know it's kind of early days for both retail sports betting and the gray market machines coming offline in Kentucky, but your win per day in Kentucky off of those machines have been ticking up in the last couple of months. Are you guys seeing a different age or demographic kind of walking through that door that you can kind of point to either of those catalysts pushing more people into the facility?

I think what you're seeing in Kentucky is the fact that our facilities haven't reached maturity yet. It was a product that was introduced to the state that they didn't have a great deal of familiarity with, and we're reaching the consumer, we're still getting trial. So, it's still a growing business. And we've continued to invest in our properties that make those properties more attractive for visitors when they do come. We're seeing some impact from turning off gray games too, I'm sure. There are a lot of variables at play there and in the state of Kentucky in general, they're all positive variables. So, I wouldn't put it to one thing. I think there can be assumptions around how long it takes a facility to reach maturity before it takes significant capital investment to grow it further. We haven't gotten to that point at any of our facilities in Kentucky. And that's more the story than changes in the customer dynamics or demographics.

Understood. Thanks, Bill.

Thank you. One moment, please, for our next question. Our next question comes from the line of Daniel Guglielmo with Capital One Securities.

Hi, everyone. Thanks for taking my question. When thinking about the size and scale of the gaming portfolio and the experience that the team has gained over the last few years, from an organic and same-store unit perspective, do you think there's continued room for win-per-unit expansion from current levels? And what are some of the things you all are doing on that front to push that forward?

Sure. I think if you're contrasting gaming versus HRM, obviously, our HRM haven't approached maturity yet. That is an area of a lot of investment and a lot of growth and a lot of high margin. If you're comparing it to some of our non-HRM gaming facilities, some of those are closer to maturity than others. Some of those have reached maturity. In our minds, we look at this as two different growth trajectories. So, for more traditional brick-and-mortar gaming, non-HRM gaming, sure. I mean, we're seeing some of the impact of the economy. And that's a question of managing our margins well, making sure that we're watching our costs and otherwise focusing on all the attributes of running that business, those sites, as well as we possibly can. Our team at those sites, they're aggressive, growth-minded people. That's our mindset. That's our culture. So, they're constantly pitching new ideas, new capital investment, which they think will drive an improvement in the top line and bottom line of those facilities. We look at that very seriously, just like we look at investment in Twin Spires and Churchill Downs Racetrack and in our HRM facilities. Therefore, those teams compete for capital as well. And they have to demonstrate that they can grow their top line and their margins when we give it to the facilities. You'll see us do things on brick-and-mortar gaming, just like you'll see us do things with HRM. If you look at the trajectory of our Company, you can see we're making a large investment, close to $300 million in Terre Haute. That's a traditional Class III casino environment. We've put a lot of time, effort, blood, sweat, and tears into winning the Richmond referendum because we believe that's a huge market for brick-and-mortar gaming, traditional brick-and-mortar Class III gaming. So that’s the way to think about how we approach where to invest our capital and how we compare and contrast, whether it be traditional Class III gaming or HRM gaming or Twin Spires business or investment in Churchill Downs Racetrack.

Thank you. Thank you. That was great. And then just quick, you mentioned some table game weakness at Rivers. It's a trend I noticed in the first half for some peers that report drop and win on a quarterly basis. When you dig into that further, is there anything there of note, change in kind of play style, the games, segment of player that's not showing up? Thank you.

No, I think I'll reiterate what I said. And I think that's the story there. The story for Rivers for us was really the drop in the hold rate for table games. That happens sometimes quarter to quarter. And that was a big explanation for the story. Certainly, the fact that there's competition in the market from the Waukegan asset and from now the downtown Chicago asset, that's having less impact than we thought. And it's really been on the slot side. But that is a fantastic property. One of our favorite investments of our experience together as a team has been the investment in Rivers. It's a fantastic property. We believe in it strongly. I see cause for real optimism when you look at how it's performing compared to the assets that are now open in the market. Sure, that's new competition. So, it's having some level of impact, but it's not a material level of impact. If you look at our performance for the quarter, that's a story about hold on table games more than a decline in the base business level.

Thank you.

Thank you. I'll now turn the call back over to CEO, Bill Carstanjen for any closing remarks.

Thank you, everybody. As always, thank you for your time today. Thank you for your interest and investment in our Company. We'll do our very, very best to meet your expectations and to maximize your return. So, thank you again, and we'll talk to you next time.

Ladies and gentlemen, thank you for participating. This concludes today's program and you may now disconnect.