Churchill Downs, Incorporated

Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated fourth quarter and full year 2025 results 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 fourth quarter 2025 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2025 fourth 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 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 10Q and Form 10K. 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 10K are available on our website at churchildownsincorporated.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 begin with a review of our 2025 performance and key accomplishments, and then discuss our strategic priorities and growth plans. Marsha will follow up with the details on our financial results and capital management strategy. After her remarks, we will take your questions. First, let's recap last year. 2025 was another very strong year for Churchill Downs. We delivered record net revenue and record adjusted EBITDA, exceeding our prior records set in 2024. We also delivered record adjusted EBITDA in both our live and historical racing segment and our wagering services and solutions segment. Our regional gaming portfolio delivered a solid performance as well. Importantly, we advanced several key strategic and operational initiatives during the year. We hosted another highly successful Kentucky Derby following the milestone 150th Derby in 2024. Despite facing a challenging comparison and economic uncertainty early in 2025, including tariff-related volatility during the later part of our sales cycle, Our team executed exceptionally well. We generated record handle for the Kentucky Derby Race, the Derby Day program, and Derby Week overall, along with the highest television ratings in nearly 40 years. We were just below the prior year's record earnings level, but we expect to return to consistent and meaningful growth across all metrics, including adjusted EBITDA this year. Our guests experienced the first year of our newly renovated starting gate pavilion and courtyard, which now offers improved seating, elevated amenities, and a more upscale social environment for approximately 8,100 guests. 2025 was the second year of operations for our redesigned paddock. This project significantly enhanced the on-track experience and strengthened both the in-person and broadcast presentation of our racing product and overall event. The paddock and related investments provide a long-term foundation for accelerated continued growth at Churchill Downs Racetrack. While the Kentucky Derby is the longest continuously run sporting event in the United States, we believe there remains substantial opportunity to further expand its reach and impact. During the past year, we have also grown our HRM footprint. In Kentucky, we opened our Owensboro venue last February, And just yesterday, we held the grand opening of Marshall Yards Racing and Gaming in Calvert City, Kentucky. In Virginia, we expanded our Richmond property and opened Rose Shire Gaming Parlor in Henrico County. We also made significant progress growing the Rose in Northern Virginia in its first full year of operations. In addition, we announced plans to invest $180 to $200 million to develop Rockingham Casino in Salem, New Hampshire. We also received regulatory approval in Kentucky to introduce electronic table games based on historical horse racing. In early February of this year, we introduced our first roulette electronic table games in our Kentucky HRM facilities. All of this was accomplished while maintaining prudent leverage levels and preserving financial flexibility for future growth. We have laid the foundation for many more years of growth as we look to 2026 and beyond We are more excited than ever about our strategic plans that we believe will create significant shareholder value over the long term. Our strategy centers on five key priorities. First, continue to grow the Kentucky Derby. For this year's Derby, we will unveil the newly renovated mansion, which is one of the most prestigious and desired areas of Churchill Downs Racetrack. We will also complete the renovations of the finish line suites, our most exclusive and valuable suite product. which will include a number of new and unique amenities for the enjoyment of our guests. Both projects are on time and on budget. Looking further ahead, we will finish the Victory Run project in time for the 2028 Kentucky Derby. This new structure, located just past the finish line, will feature premium suites, box seatings, and multiple high-end dining experiences, growing our net seating capacity in this area by 1,400 people, or 22%. and improving the experience for close to 8,000 of our guests. For the 2027 Derby, Derby 153, we will offer an interim covered upgraded seating product in the Victory Run section with stadium seating, boxes, and enhanced amenities. More broadly, we will continue to evaluate long-term investments that will maintain and broaden the Derby's global appeal while elevating the guest experience. We are also expanding Derby Week itself. In 2025, we welcome 375,000 guests across the week, the equivalent of five Super Bowls. This year, we are adding racing on Sunday, April 26th, marking the first Sunday racing during Derby Week in over 15 years, expanding our festival of racing to seven live race dates across the eight calendar days. This year, the Kentucky Oaks will move to prime time on NBC and Peacock between 8 and 9 p.m. Eastern Standard Time. The Oaks is already the fourth highest betting race in the United States, behind only the Kentucky Derby itself, the Preakness, and the Belmont Stakes. This national prime time placement further validates the Oaks as a nationally prestigious event and strengthens Derby Week as a multi-day platform. This is the day we celebrate high fashion and women's health advocacy, while everyone adds at least a splash of pink to their outfits and watches the Thoroughbred Racing's best three-year-old fillies race. On Saturday, May 2nd, Derby Week culminates with the running of the 152nd Kentucky Derby. The Derby is America's greatest day of racing by every possible metric and arguably the world's as well. The second component of our strategic plan is to grow our HRM portfolio. We will continue expanding our HRM venues in Kentucky and Virginia, supporting the funding of racing purses and local agricultural industries while generating attractive economic returns. Construction of Rockingham Grand Casino in Salem, New Hampshire will continue through 2026 and 2027 with an expected mid-2027 opening. This property is located in a highly attractive market, including more than 800,000 adults within a 20-mile radius and over 4.9 million people in the greater Boston MSA. As I mentioned previously, investment in this facility is expected to be in the $180 to $200 million. We also retain rights to the Chasers HRM license and will pursue appropriate development opportunities for that license in the future. Third, we will expand Xacta, our HRM technology business, within our owned HRM venues as well as with other third-party HRM properties both in the United States and internationally. Our vertical integration through the purchase of Xacta in 2024 has provided significant support and margin improvement for the growth of our HRM businesses in Kentucky and Virginia. Xacta will also be the cornerstone of our technology in our upcoming Rockingham venue in New Hampshire. The recent introduction of roulette electronic table games, or ETGs, in Kentucky allows us to further leverage this platform. As we develop additional HRM-based ETGs, including potential offerings such as craps and blackjack, we expect continued benefits for our shareholders. Additionally, we are expanding our B2B business in both the U.S. and internationally. In December, a third-party HRM property in Wichita, Kansas, opened with a significant portion of their gaming floor utilizing our technology. We are also providing Xactic technology in Alabama and continue to explore international opportunities. Fourth, we will grow our Twin Spires horse racing business. We see continued opportunity in our Twin Spires platform on both the B2C and B2B sides of the business. Wagering on premier events such as the Kentucky Oats and the Kentucky Derby has grown meaningfully in recent years, and we believe the broader market opportunity remains attractive as consumers continue to migrate online. Finally, we remain focused on disciplined investments across our portfolio. We will continue refining operations within our regional gaming assets and selectively investing where returns are compelling. We believe that our regional gaming assets will enjoy a nice tailwind in 2026 and beyond from our consumers receiving higher tax refunds because of the new federal tax laws. Across initiatives, we prioritize sustainable long-term growth aligned with our core competencies and disciplined capital allocation. In summary, 2025 was a record year for Churchill Downs. We enter 2026 with strong momentum from our flagship asset, the Kentucky Derby, as well as from our HRM and technology initiatives. We maintain a strong balance sheet and remain focused on driving adjusted EBITDA growth, free cash flow, and long-term total shareholder returns through consistent execution. We will also pursue disciplined growth with ancillary or adjacent opportunities aligned with our long-term strategic plans. We see a bright future based on these principles. Finally, the 152nd Kentucky Derby is now 65 days away. Demand is strong, and we are pacing ahead of prior years, including ahead of the milestone 150th Kentucky Derby. If you have not purchased your tickets yet, I would encourage you to do so as we anticipate being fully sold out. With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia?