Churchill Downs, Incorporated

Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2025 Third 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. We ask all question-and-answer participants to please limit themselves to one question. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sam Ulrich, Vice President, Investor Relations.

Thank you, Andrew. Good morning, and welcome to our third quarter 2025 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2025 third 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 churchildownsincorporated.com, as well as in the website's investor section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. 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 Carstangen.

Thanks, Sam. 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 an update on growth plans for our company, including with respect to the Kentucky Derby and our HRM businesses. And then Marsha will provide insight into our financial results, as well as an update on our capital management strategy. After she finishes, we will take your questions. First, regarding our third quarter results. We delivered overall record net revenue and record adjusted EBITDA in the third quarter. We also delivered record adjusted EBITDA for our live and historical racing segment as well as our wagering services and solutions segment. We are also very pleased with the performance of our regional gaming properties in the third quarter. Their results reflect consistent strength from our high-end and rated guests, along with nice growth from our unrated players across the majority of our markets. Now let's talk about our plans for the company, both near-term and long-term. First, regarding our plans for Derby Week and Churchill Downs Racetrack. During our last earnings call, I discussed the five key growth catalysts for the Derby that will power the growth of Churchill Downs Racetrack in 2026 and beyond. The first is ticketing revenue, driven by premium experiences during Derby Week. The demand for the Kentucky Derby and for Derby Week tickets is continuing to grow as we deliver new and unique customer experiences. We will also realize further incremental ticketing revenue from the investments we have made over the last number of years. One example of this is the Starting Gate Pavilion and Courtyard. We significantly improved this area this past year, and the guest feedback has been overwhelmingly positive. As a reminder, this project transformed 10,000 bleacher seats into a combination of approximately 8,500 premium stadium and trackside box seats. We also significantly improved the amenities for these guests, as well as for an additional 2,800 people seated in existing surrounding sections who are now able to access the hospitality options of the newly renovated area. We believe that ticketing revenue from the starting gate pavilion and courtyard and from other recent investments, as well as general price increases, will provide meaningful adjusted EBITDA growth for Derby Week going forward. The second driver of long-term growth for Derby Week is our broadcast rights. As I discussed on our last earnings call, our NBC deal will deliver a $10 million increase in adjusted EBITDA for 2026. We also announced that NBC will, for the first time, broadcast the Kentucky Oaks race in 2026 during prime time on Friday night, May 1st. We believe this will amplify awareness, engagement, and wagering for both the Kentucky Oaks race and for the Kentucky Derby the next day on Saturday, May 2nd. The third driver of long-term growth is wagering. We continue to attract the best horses from around the world and are benefiting from the Derby's expanding cultural relevance, both domestically and internationally. We believe the increasing availability of online sports wagering across the United States is very much a positive development for wagering on the Kentucky Derby and races across Derby Week. The huge customer base delivered by the online platforms gives us the opportunity to reach more potential bettors and fans than ever before. Also of note, our Twinspires.com platform has continued to post strong growth and unique users during this period of rapid sports wagering expansion. And these players are remaining active and engaged long after the Derby. Internationally, we recently announced the expansion of the European and Middle Eastern road to the Kentucky Derby by adding three new points races in Dubai and Saudi Arabia. There are now 10 races across five countries that comprise this series, allowing for up to two horses to qualify for the Kentucky Derby. This strengthens the quality and intrigue of the international pathway to the Derby and extends our brand further into two of the sport's most dynamic and high-profile markets with Dubai and Saudi Arabia. We are very excited to deepen our engagement with owners, trainers, sponsors, and fans across these regions, which we believe will generate long-term benefits for Churchill Downs Racetrack and enhance the global reach of the Kentucky Derby. The fourth driver is sponsorships and licensing. Sponsors are increasingly recognizing the value of our expanding national and global footprint, driven by growth in onsite attendance, television and digital audiences, social media engagement, and other strategic initiatives. The heightened visibility is attracting interest from some of the most well-respected brands and we remain focused on broadening and strengthening our sponsorship portfolio in the years ahead. And finally, the fifth driver is selective renovations and expansions through capital investment. As discussed on our last earnings call, we are on track to complete the renovations of two of our most prestigious and exclusive areas, the finish line suites and the mansion for the 2026 Kentucky Derby. We announced last evening that we are planning to invest $280 to $300 million to build a new structure called Victory Run just past the finish line between the Sky Terrace and the first turn section, an area we refer to internally as the Gap in the Smile. Victory Run will be a fantastic location and will offer tremendous views of the horses and the pageantry of the event. This new venue will replace existing uncovered ground level box seats and dated dining areas with new premium hospitality offerings, including private suites and a combination of indoor and outdoor dining and covered box seats. Construction will begin following the 2026 Kentucky Derby, with Victory Run completed in time for the 2028 Derby. During the 2027 Derby, Derby 153, we plan to offer an interim upgraded seating experience in this area, featuring temporary covered stadium seating and enhanced amenities to ensure guests enjoy a premium experience even during the year of partially completed construction. We remain committed to strategically investing in our flagship asset over the long term to enhance the guest experience during Derby Week and to broaden our appeal to new audiences. These investments have delivered and will continue to deliver adjusted EBITDA growth with outstanding returns for our investors for years to come. Churchill Downs Racetrack and the Kentucky Derby remain the crown jewel of our company. These five growth catalysts provide a strong foundation for a vibrant and successful future for the Kentucky Derby and our company. Next, turning to our HRM progress, first in Kentucky. We are on track to open our eighth HRM entertainment venue in Calvert City during the first quarter of 2026, on time and on budget. This will be an important addition to our portfolio of entertainment properties in the Commonwealth. With a population of 300,000 people within a 60-mile drive, our Calvert City site is conveniently located near the intersection of two interstates, providing easy access for customers from several surrounding cities in southwestern Kentucky. This venue will be branded Marshall Yards Racing and Gaming inspired by the railroad industry that shaped the surrounding communities. Marshall Yards will feature 250 HRMs and a music stage that will host a wide variety of live entertainment, attracting customers to this special property. Turning to Virginia. As expected, the rows continued to show great progress during the third quarter. Gross gaming revenues grew meaningfully, and we are rapidly building our customer database. We were also pleased to see continued growth in weekday gaming revenue driven by increased visitation frequency through our data-driven marketing. As we approach the one-year anniversary of the opening, we are making excellent progress in laying the foundation for long-term growth at The Rose. In central Virginia, we completed the expansion project at our Richmond HRM venue. We renovated an unused space to expand our gaming floor in May of this year and completed the remaining phase of this project in August. which added 450 incremental HRMs to the property. We also opened the Rose Shire Gaming Parlor in Henrico County on September 29th, ahead of schedule and below budget. This upscale entertainment venue features 175 games and other gaming-related amenities. It's off to a fantastic start. We currently have 4,875 HRMs deployed in Virginia. Virginia has proven to be a great investment and business environment for us. As the exclusive operator of Thoroughbred Racing and HRMs, we are building strong relationships with key constituents in both the horse racing and agricultural industries. We will continue to pursue opportunities to expand our footprint and grow the number of HRMs in this dynamic market. Turning to New Hampshire, we completed the acquisition of a 90% interest in the Casino Salem project located at the mall at Rockingham Park in Salem, New Hampshire. near the Massachusetts border at Exit 2 on Interstate 93. This is a highly attractive market with approximately 800,000 adults within a 20-mile radius and over 4.9 million people in the broader Boston MSA. More than 100,000 vehicles pass the property daily on I-93. Currently, we are operating a temporary facility with 100 HRMs and 13 table games. Design work for the permanent venue is nearly complete And we expect the facility to have approximately 900 HRMs, 30 table games, three food and beverage venues, a signature center bar, and a large live entertainment venue. We will seek local permits and approvals for the final design, after which construction of the permanent venue will begin. We will provide more details on timing on our next earnings call, but expect to open the facility in 2027. We plan to invest approximately $180 to $200 million to develop the state-of-the-art gaming and entertainment destination. In the near term, we anticipate continuing to operate our Chasers Poker Room in Salem, and we have retained the rights to the associated HRM license. We will evaluate and pursue viable alternative uses for the second HRM license in New Hampshire in the future. Turning to Xacta. Our Xacta business has grown through the expansion of our HRM operations in Kentucky and Virginia, as well as through our third-party relationships in Kentucky, New Hampshire, and Wyoming. Xacta technology is supporting our temporary facility in Salem, New Hampshire, and will be utilized in the permanent Salem Casino facility when it opens. We anticipate that a new third-party HRM property in Wichita, Kansas will open in December of this year with a significant portion of the gaming floor utilizing our technology. We are excited to support the expansion of HRMs into this new market. We have also made excellent progress towards gaining approval to deploy HRM-based electronic cable games. We are working to gain the necessary approvals from appropriate state authorities and expect to have more to share in the near term. HRMs and the related Xacti technology represent a high growth, high margin investment that delivers strong returns for our shareholders. We will continue to focus on developing these businesses. In summary, third quarter was very strong for us with record financial results. We have a portfolio of unique and high-performing assets that collectively provide multiple catalysts for growth and free cash flow generation for years to come. We believe the Kentucky Derby will deliver outstanding growth in 2026 and beyond, as will our recent investments in HRM properties and the related Xacta technology. We will also continue to identify and execute high-quality growth initiatives. Our strategic decisions, disciplined capital allocation, strong balance sheet, and diversified portfolio positions us to drive sustainable, long-term growth and adjusted EBITDA and free cash flow. We remain focused on delivering superior returns for our shareholders. With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia?