Churchill Downs, Incorporated

Good day, ladies and gentlemen, and welcome to the Churchill Downs, Incorporated, 2026 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. 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 Ullrich, Vice President, Investor Relations.

Thank you, Andrew. Good morning and welcome to our second quarter 2026 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2026 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 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 related announcements 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 10Q 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, Sam. Good morning, everyone. Joining me today are Bill Mudd, our President and Chief Operating Officer, Marcia Dall, our Chief Financial Officer, and Brad Blackwell, our General Counsel. I will begin with highlights from our record second quarter performance in Kentucky Derby. I will then provide an update on our major development projects and our strategic plans. Marcia will follow with more detail on our financial results and capital management strategy, and then we will take your questions. First, regarding our second quarter results, we delivered all-time record net revenue of $980 million and all-time record adjusted EBITDA of $477 million. This marks the sixth consecutive record second quarter for both metrics. At the end of April, we began a week-long celebration leading up to the 152nd running of the Kentucky Derby on Saturday, May 2nd. We made several enhancements that expanded the reach and value of our iconic event. We added Sunday racing on April 26th. With this additional day, we welcomed over 386,000 guests for Derby Week. This is the equivalent of nearly six Super Bowls or World Cup games over the course of one week. We continue to reap the benefits of the capital we have deployed to enhance the Derby experience. We are building long-term demand in each of the areas in which we have invested over the past five years, including the starting gate courtyard and pavilion, the first turn, and the paddock. We completed the renovation of the mansion and a significant upgrade to the finish line suites for this year's Derby week. Both premium areas offer exceptional views of the finish line, and the guest feedback has been extremely positive. Our partnership with NBC delivered record broadcast revenue and viewership. Broadcast revenue increased $10 million under our new NBC agreement. Peak viewership exceeded 24 million, 12% above last year's record. For the first time, NBC aired the Kentucky Oaks race in prime time, reaching an average audience of more than 2.4 million viewers. The Friday night broadcast created a strong lead-in to the Kentucky Derby, and expanded awareness, engagement and wagering around our flagship event. Derby Week also generated more than 500 million social media impressions, up 84% from 2025. This year, we once again set all-time records for all sources wagering on Derby Week. The Kentucky Derby race remains, by a massive margin, the highest U.S. horse racing wagering event, while the Kentucky Oaks race is the fourth highest. As expected, sponsorships and licensing for Derby Week also grew in 2026. Together, all of these results demonstrate the continued growth in Derby Week's cultural relevance, reach, and value. Turning to our key development projects, our capital investments in 2026 are primarily focused on the continued development of Churchill Downs Racetrack and our HRM expansion in New Hampshire. Regarding Churchill Downs Racetrack, first, Our $285 million Victory Run project will be completed before the 2028 Kentucky Derby. Located on the first turn, this new hospitality offering will add premium suites, cover box seating, and multiple high-end dining experiences. For the 2027 Kentucky Derby, we intend to have high-end temporary stadium seating, restrooms, and concessions underneath the newly constructed Victory Run roof to materially improve the guest experience until the interiors and other permanent improvements are completed in 2028. This project remains on time and on budget. Second, we are expanding the interior of the Homestretch Club to add amenities and indoor space for the 2027 Kentucky Derby. Third, we are redeveloping the infield areas on both sides of the Winters Pagoda, which is the historic building in the infield near the finish line, for the Kentucky Derby winners received their trophies. As part of this redevelopment, we will be removing the tote boards and using this space to create new customer experiences with exceptional views of the home stretch, the finish line, and the Derby winners trophy presentation. For the 2027 Derby, we will be installing 1,400 temporary seats and we'll also be testing a new cabana offering for approximately 500 guests along the turf course. These new offerings will enable our team to further segment the infield experience and provide a broader set of price points. We are also making underground infrastructure improvements in the first turn area of the infield, which will enable us to create a more level area for a music stage and new bar and lounge concepts. We will continue to evaluate long-term permanent entertainment experiences for these highly desirable areas of the infield. In New Hampshire, Rockingham Grand Casino in Salem remains on track for a mid-2027 opening. We expect this state-of-the-art gaming and entertainment destination to attract guests from across New England. Now I will provide a brief update on our strategic plans. Over the last number of years, we have built and acquired unique growth assets, invested organically in the Kentucky Derby and high return HRM properties, and monetized assets when we believed another owner could create additional value. We believe that our recent share price performance has not reflected the quality, durability and cash generating characteristics of our properties and we certainly recognize that we must constantly analyze and adapt to our market environment and dynamics. After a great deal of internal strategic analysis and discussion, we commenced the strategic review of our wholly owned regional gaming properties within our gaming segment. As part of this review, we assess the strategic importance of each of our wholly owned regional gaming properties to our overall company strategy. As a result, we are exploring various options to sell the following nine gaming properties. Culver Casino in Florida, Terre Haute Casino in Indiana, Hard Rock Casino in Iowa, Oxford Casino in Maine, Ocean Downs in Maryland, Harlow's and Riverwalk Casinos in Mississippi, Del Lago in New York, and Presque Isle in Pennsylvania. We will retain our Fairgrounds related properties in Louisiana because of their long term importance to the horse racing industry. Fairgrounds Racecourse is home to the Louisiana Derby, which is a premier road to the Kentucky Derby race. Fairgrounds also offers one of the very few wintertime turf courses in the eastern half of the United States and plays a key strategic role in the migration of racehorses in the colder months. Based on market feedback, we now believe that a sale of these properties will most likely be individually or in small groups to maximize value for our shareholders. We are working hard to execute this process over the coming months. We have engaged Macquarie Capital to assist us. To be clear, we do not intend to sell our HRM properties in Kentucky, Virginia, or New Hampshire. Our intention is to use any asset sale proceeds to significantly reduce our leverage Reinvest selectively in Churchill Downs Racetrack and in other high return projects and fund the repurchase of shares of our stock. Going forward, we will concentrate on assets with strong cash flow and durable competitive advantages. Three cornerstones will anchor this strategy. The Kentucky Derby, our HRM businesses, and our Twin Spires business. Together these cornerstones support the horse racing ecosystem and provide multiple avenues for profitable growth and long-term shareholder value. The Kentucky Derby is our defining asset and the foundation of our differentiated strategy. As the crown jewel in our portfolio, we are committed to expanding its relevance, reach, and earnings power while preserving the traditions that make it singularly unique. It is a one-of-a-kind luxury live sports and entertainment property that builds on 152 years of tradition, historic Americana, celebration, and shared experiences. We intend to build on that legacy. Our goal is to make Derby Week an even broader national and international event. We see meaningful opportunities to grow global attendance, wagering, viewership, sponsorship, and EBITDA across the full week. Strategic investments will remain a key part of our long-term strategy for growing the Derby. These projects are designed to elevate the guest experience, expand premium inventory, deepen sponsorship opportunities, and generate attractive long-term returns. The second cornerstone of our strategy is HRMs. We will continue to develop and optimize high-quality HRM entertainment venues in Virginia, Kentucky, and New Hampshire, and to pursue opportunities in additional states that authorize HRMs. We will use Xacta technology to improve returns at our properties, expand the platform with other U.S. and international operators, and continue to develop electronic cable games to broaden our product offerings. Our HRM venues play an important role in supporting the horse racing industry in their respective states. They generate purse funding, support the local agricultural industries, support local charities, create jobs, and drive meaningful economic impact in their communities. We also plan to continue to grow and optimize the Virginia HRM footprint. Through our ownership of Colonial Downs, we have the sole right to 10 HRM licenses and 5,000 machines in the Commonwealth. Our portfolio generates strong margins and free cash flow while supporting racing purses, tax revenues, and jobs across the state. We are exploring options to run referendums in the town of Pulaski and in Amherst County, both in the western part of Virginia, that would allow us to further expand our HRM footprint. We believe both jurisdictions are underserved markets with attractive growth potentials. In Kentucky, our eight HRM venues operate approximately 5,300 machines and continue to generate strong growth and significant PERS funding. Since Derby City Gaming opened in 2018, purses at Churchill Downs Racetrack have increased from less than $40 million to more than $100 million. We see further long-term growth through leading gaming content, enhanced entertainment, new products, including electronic table games, and selective expansion. In New Hampshire, as I discussed earlier, we are excited about the opening of Rockingham Grand Casino in mid-2027. We also retain the HRM license associated with Chasers in Salem and will pursue attractive alternative uses for that license. The third cornerstone is Twin Spires. Twin Spires remains focused on expanding interest and participation in horse racing wagering through innovation and broader direct to consumer and business to business distribution. During Derby Week, Twin Spires again set records for wagering, new registrations, first-time depositors, and active players. We intend to build on that momentum. In summary, the second quarter delivered record results and demonstrated the strength of our core businesses. Our Churchill Downs Racetrack and Rockingham Grand Casino projects remain on time and on budget. We are executing a long-term strategy with the Kentucky Derby, HRMs, and Twin Spires, serving as the pillars. and we will seek to sell our wholly owned regional gaming properties to pay down debt, to repurchase shares and to selectively reinvest in our business. Our strategic decision making, disciplined capital allocation, strong balance sheet and portfolio of unique and iconic assets have positioned us well to drive sustainable long-term growth. This is an exciting time for our company and our shareholders. With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia?