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spk10: 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'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'd now like to introduce your host for today's conference, Mr. Nick Vangary, Vice President, Treasury, Risk Management, and Investor Relations. Please go ahead.
spk05: Thank you, Bonjay. 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 investor section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that can 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 churchildownsincorporated.com. And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstangen.
spk13: Thanks, Nick. 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 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. Marsha 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 deliver 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 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 an 80 to 1 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. Twin Spires 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 themed 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 event. Our Kentucky HRM venues also performed very well in the second quarter with all three properties, Derby 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 Twin Spires business, revenue in adjusted EBITDA for our Twin Spires horse racing business was 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 US 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 and horse racing after we clear the tough comps from the pandemic quarters. The second quarter of 2022 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 Twin Spires online sports and casino business was almost break even in the second quarter, reflecting the actions we have taken to quickly exit this business while maintaining the retail sports operations and 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 was 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 Houma, 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 modest increased labor cost pressure across all of our regional gaming facilities. Regarding our equity investments in 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 the second quarter of last year, that was a very tough comp. We expect to see continued strong growth at Riversteppes Plains 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 have 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, the P2E acquisition. Third, our New Hampshire acquisition. Fourth, our Calder and Arlington land sales. And finally, our Twin Spires business-to-business strategy. Let's talk about our major organic growth projects, starting with our projects at Churchill Downs Racetrack. We have been working on the first turn project, which as a reminder involves replacing 3,400 lower price temporary seats with 7,100 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 built behind the new seating sections. 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 to $200 million investment and the transformation of the areas underneath and adjacent to the historic Twin Spires 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 through the paddock and surrounding plaza areas, and will add over 3,600 new premium reserve seats and 3,250 new standing room only premium tickets, while also materially and directly upgrading the amenities for over 3,700 existing premium reserve seats. When we are done with these two projects, we will still have only transformed a portion of Churchill Downs Racetrack. There are many more opportunities in the years ahead to build out a 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 a reserved seat and attend simply with a general admissions 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 gaming floor and to build a new five-story hotel. The gaming floor expansion is on track to be completed by the end of 2022. We plan to open with 200 machines and will 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 4th 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 HRMs 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 on rolling 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 Haute project in Indiana. We purchased the property for our Queen of Terre 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 1000 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 is 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 the horse racing and agricultural industries in Virginia. Based on Virginia law, we will be required to run one race date for every 100 HRMs 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 50 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 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 the P2E transaction 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 open. We aren't ready to announce a 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 the 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 gate from the sale of the Calder land. We are 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. We plan to utilize 1031 exchange transactions to defer the tax and the gain on this sale as well. And last, I will share some thoughts on our Twin Spires 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 Twin Spires horse racing business. It's a sophisticated, data-intense 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 customers of Twin Spires 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 parimutuel wagering on horse racing, We have the technical expertise, access to racing content and technology to seamlessly integrate parimutuel 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 weight and sponsorships for the Kentucky Derby and to generate incremental content fees for Churchill Downs Racetrack as well as our other racetracks. Our Twin Spires strategy going forward will be to maintain and grow our existing Twin Spires 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 prior year quarter, and we're proud of that. We are 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. Marcia?
spk06: 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 life cycle. Our team has built these properties to operate very efficiently as we build the customer databases and expand and evolve the game titles at each of these HRM properties to 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 and Gaming had 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 are very pleased with the early performance of our first wave of HRMs at 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 in exiting the Twin Spires 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 Twin Spires retail and online sports and casino business it's 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 that 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, in the second quarter of last year, marketing and 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 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 for our two Mississippi casino properties combined for the second quarter was flat the second quarter of 2019, despite the introduction of the major competitor in Arkansas in 2020 and economic weakness in the state 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 Prescott Isle and Louisiana properties, along with the impact of the continued closure of our profitable Huma 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 for the impact of the Hurricane Ida on our Huma OTV. We did see increased revenue and adjusted EBITDA at our Oxford and Calder gaming properties. As we shared in the past, our regional gaming strategy of 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 in gaming properties, River Sus Plains 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 comparison was a difficult comp for the reasons I just mentioned. River Sus Plains 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 to $70 million on maintenance capital and $300 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. At the end of June 2022, our bank 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. Our leverage 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 and escrow, ongoing free cash flow generation, and 100% capacity on our $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 and just the 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.
spk12: Bill? Thank you, Marcia. If anybody would like to ask any questions, fire away.
spk10: Thank you very much. Again, to ask a question, you will need to press star and then the number one on your telephone keypad. Our first question is from the line of David Katz of Jefferies. Please proceed with your question, please.
spk02: Hi. Can you hear me all? Yes. Hi, David. Good morning. Hi. Good morning. For a couple of seconds. So I wanted to talk about the B2B, you know, Twin Spires strategy. And it sounds as though you're taking a holistic approach, Twin Spires, and this is incremental to it. But, you know, any color you can give us on, you know, 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 add-on
spk13: could be well we think it's we think it's a nice opportunity and it starts with work that others have done about what the ultimate size of the of the American online sports wagering market opportunity will be and then it becomes a question of well what will our what will horse racing's percentage of that be those are 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. 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, you know, a significant expansion and distribution of potential customer base that's new to us. So how large it'll be, how significant it'll 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.
spk02: 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?
spk13: Yeah, that's exactly right. Those are the building blocks on which you can then make some assumptions. Okay.
spk02: And separately, I wanted to ask about Richmond, Virginia. You know, what you might be seeing or hearing. I know that there's a referendum and some goings-on there. You know, what, if anything, is the latest?
spk13: 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. 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 our arms with our partners, 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.
spk02: Thanks, David.
spk10: Thank you. And our next question is coming from the line of Daniel Pulitzer of Wells Fargo.
spk09: Please go ahead.
spk08: Questions. So I wanted to dive a little bit into the gaming performance in the quarter. Just additional clarity, if you can talk through, you know, the promotional environment. Was that confined to Riverwalk? Are you seeing it, you know, across different properties? You know, any other property one-offs to think about going forward? And then also, you know, any sense of cadence through the quarter, you know, April, May, June, and maybe some color on July trends. Thanks.
spk13: Thanks, Dan. Yeah, so I first, when we talk about gaming, I'm going to talk about, 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 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. In Mississippi, we saw the entire market was soft, including for us, particularly Riverwalk and Harlow's. 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.
spk08: Got it. And just kind of pivoting to the build out of the, you know, horse racing bedding and content and the technology. I mean, are you envisioning multiple deals here, an exclusive, you know, kind of a white label product where you just provide the tech and the content? And then, you know, how should we think about the potential risk of cannibalization for your core TwinSpire product as you maybe, you know, effectively syndicate that content to other operators? Thanks.
spk13: Yeah, those are two really good questions. I think every sports, online sports operator has a different set of needs. So some will need more services than others. Some know nothing about horse racing. Some know quite a bit about horse racing. So we have a suite of services that we can provide for people, not just technology, but content, et cetera. And we'll let potential partners dictate what they need and how we can help them, how we can partner with them. I think ultimately the idea here is not a white label standalone ADW. The ultimate idea here is integrating horse racing into their into their larger sports PAM that is offering a range of different sports. So as you know, Dan, horse racing is parimutuel based and the sports PAMs as they're structured in the United States are offering fixed odds wagering on these different sports. So connecting that fixed odds wagering platform to parimutuel wagering is something we can do. It's something that takes some work and it takes a partnership to accomplish. But that ultimately, I think, is where this goes because that offers access to the most potential actual customers, those who are on the larger sports wagering platforms. In terms of cannibalization, there can be some of that, especially with the lower-end customer base, but that isn't something we find particularly troubling right now because Twin Spires really is ultimately driven by committed players. Those are the ones that are most interested in the suite of sophisticated tools and content and video that's available. It's a very extensive, complicated product with lots of different ways of customizing. And for the core players who really like to devote a significant amount of time, we think Twin Spires will stand alone as a really attractive option compared to the slimmed-down, simplified newbie interfaces we're likely to see more of on the online sports wagering platform. But certainly for newer customers who aren't as familiar, there can be some cannibalization there, but that is not what drives the performance of Twin Spires. That cohort is not who drives the performance of Twin Spires.
spk08: Understood. Thanks for all the color.
spk01: Thanks, Dan.
spk10: Thank you very much. And our next question is coming from the line of Sean Kelly from Bank of America. Please go ahead.
spk07: 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 costs. 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.
spk13: So I'm going to take that second question first, and then I'm going to ask my colleague Bill Mudd to return to Mississippi and Presque Isle. Your second question, how do we mitigate? There are always opportunities to mitigate your cost structure in a declining revenue environment. That isn't something that we have faced recently, and it isn't something that is a wildly important concern for us right at the moment. But there are always things you can do around all your different expense items, your expense lines, when times get tough. But again, I don't think that that's really the environment we found ourselves in. And I'm always very, very careful about concluding anything from one quarter or two quarters about the long term. Our team, I would just remind people, our teams at the property level have stood the test of time for quite a while. We have very good, strong operating teams. And we take this analysis property by property. We don't tend to be holistic when we look at economic trends in the country. We tend to go market by market and find out by each market what we think we're seeing there. So if it's the case that we're looking at sustained pressure, that we need to adjust to that's impacting the top line, then that's what we'll do. And there's always ways to accomplish that, tried and proven. The fact that coming out of COVID, we opened up in environments where we had reduced labor pools and reduced marketing because we had oftentimes restrictions on how many customers we could have in the facility at one time. The fact that those two tools were tapped to a certain extent coming out of COVID does not mean that there's nothing left in the hopper if we need to adjust for the economy. But again, that's not something that's keeping me up right now. It's just steady the course right now as the environment unfolds. Bill, do you have some comments you want to make on Presque Isle or Mississippi?
spk03: Yeah, I would just say that with both properties in Pennsylvania and both properties in Mississippi, you know, they, they probably have seen pressure from, you know, inflation on fuel and, and food, uh, more than, you know, our more affluent, uh, properties have seen. So we've seen that more quickly and impressed Kyle is, um, you know, 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, 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 in 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 the 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.
spk07: Very helpful. Thank you 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 in 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. It sounds encouraging.
spk13: It is really encouraging. Also, having visited the property during the construction process and the immediate opening, there were some real ingress and egress issues that the customers had to navigate. So as is always the case when you do a construction project or an expansion project at an existing site, it's tremendously distracting to the team and it can be tremendously distracting to the customer. So some of that noise will now settle out and we'll get to see the team get the opportunity to just operate the expanded area and the full facility without the disruption and without the distraction of all the change. We think it looks really good. It's a great finish out, and it's a really, really great market. So getting the word out, getting the customers to come back, getting the customers to understand how things are a little bit different in terms of accessing the facility, and as that knowledge gets reflected through the customer base, we should see some good results. I think it's not a new story or a different story. You see it every time you do an expansion. I think the team navigated it beautifully, and we'll start to see the results over the second half of the year.
spk01: Thank you very much. Thank you.
spk10: Our next question is from the line of Joe Stoff of Susquehanna. Please go ahead.
spk04: Thank you. Good morning, Bill. Marshall, Bill. I had a couple questions maybe on the HRM side. You know, 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. I realize you'll be launching, you know, 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 realized in the first half?
spk11: Yes.
spk04: Okay. Excellent. On Salem, New Hampshire, I apologize if you could repeat. I think you had mentioned you'd 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 the timing on or a reminder of when you would expect to be able to do that.
spk13: Sure. So first, I didn't mean to give such a short answer, but it was a simple answer, so I gave it.
spk04: No, no.
spk13: No, it's the right answer, yeah. Yeah, we feel really good about HRMs and our margins based on our 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 our higher end customers. And that's a very good thing to do. So we might see a little tweak of the margin just as we operate a hotel. But generally, 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 expansion, 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 or announce our 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 it requires 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. Yeah. Yeah, I hope to have great visibility. that we can explain on timing very shortly, but today I need to be circumspect in my comments because we haven't completed some of the work to a sufficient level where we can talk about it publicly.
spk04: Understood.
spk01: Thanks a lot. Thank you very much.
spk10: Our next question is from the line of Chad Bain and from Macquarie. Your question, please.
spk11: Hi, good morning. Thanks for taking my question. In this 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 149th, 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.
spk13: Yeah, 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 approach 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. So 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 that different amenity, 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 or 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 haven't noticed as much. So you can tell I'm not super comfortable talking about raising prices at the Derby 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.
spk11: Thank you. And, yeah, I'm sure our customers appreciate that. And then in terms of capital allocation, you know, a lot of ins and outs just in terms of money being spent and money coming in from asset sales. You repurchased a decent amount of stock in the quarter. How should we think about this, you know, over the course of the next six to 12 months given the other commitments with the CapEx and then, you know, hopefully the inflow of the asset sale? Thank you.
spk13: Yeah. 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. 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.
spk11: Thanks, Bill. Appreciate it.
spk13: Sure.
spk10: Thank you. I would now like to turn the conference back to Bill Carstangen for closing remarks.
spk13: Yes, thank you. Everybody, I really appreciate the questions. Those were really interesting. 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.
spk10: Thank you. This concludes today's conference call. You may now disconnect.
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