CHDN - NASDAQ

Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] 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 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 Investors section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent reports on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release. The press release and Form 10-K 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. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Marcia Dall, 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. Marcia 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 record 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 in 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 Roseshire 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 million 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 5 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 welcomed 375 guests -- 75,000 guests across the week, the equivalent of 5 Super Bowls. This year, we are adding racing on Sunday, April 26, marking the first Sunday racing during Derby Week in over 15 years, expanding our festival of racing to 7 live race dates across the 8 calendar days. This year, the Kentucky Oaks will move to prime time on NBC and Peacock between 80 and 90 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 steaks. 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 3-year-old fillies race. On Saturday, May 2, 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 million to $200 million. We also retain rights to the Chasers HRM license and we will pursue appropriate development opportunities for that license in the future. Third, we will expand Exacta, 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 Exacta in 2024 has provided significant support and margin improvement for the growth of our HRM businesses in Kentucky and Virginia. Exacta 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 Exacta technology in Alabama and continue to explore international opportunities. Fourth, we will grow our TwinSpires horse racing business. We see continued opportunity in our TwinSpires 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?

Thanks, Bill, and good morning, everyone. Our team delivered record fourth quarter net revenue and adjusted EBITDA from our diversified portfolio, continued organic growth and returns from our recent property investments. As Bill mentioned, 2025 marked another record year for our company. Excluding 2020, we have now achieved 9 consecutive years of record revenue and record adjusted EBITDA, a clear reflection of the durability of our strategy and the consistency of our execution. Today, I'll provide highlights on our financial performance and then discuss capital management. Churchill Downs Racetrack delivered record full year adjusted EBITDA. Our growth continues to be fueled by disciplined capital investments, expanded sponsorships and record wagering activity. At the same time, our team's focus on operational efficiency has driven strong top line growth and sustained high margins from this iconic asset. Looking ahead, we expect the Derby to generate $15 million to $20 million of incremental adjusted EBITDA in 2026. The combination of the new NBC broadcast contract renewal, the expansion of Derby Week race days, strong ticket sales, increased sponsorship interest and continued wagering growth provides the foundation for another record-setting year. We are very pleased with the performance of our HRM venues in both Kentucky and Virginia and remain confident in their long-term high-margin growth potential as we continue to successfully penetrate these high potential markets. In Kentucky, our HRM properties generated record adjusted EBITDA in 2025, supported by the successful opening of Owensboro in February and strong performance across the portfolio. Despite significant January weather events this year, reported statewide GGR grew at a double-digit rate year-over-year, demonstrating the strength of underlying demand and our competitive positioning. In Virginia, our HRM venues also delivered record adjusted EBITDA. The Rose continues to ramp as we expand -- as expected, as we expand our presence in Northern Virginia. Importantly, the Roads delivered sequential growth in GGR per unit in every quarter of 2025. We are still in the early stages of this property's growth and given the attractive demographics and strong local leadership, we see meaningful runway ahead. Although Virginia experienced weather disruptions in January of this year, our same-store HRM properties performed in line with the prior year on a GGR basis, reflecting the resilience of our customer base. Regarding our Wagering Services and Solutions segment, adjusted EBITDA in this segment increased 7% in 2025, primarily driven by continued growth in our Exacta business. Our vertical integration strategy is delivering tangible benefits as we expand in existing locations and enter new markets. This segment remains an important strategic lever that enhances both growth and operating efficiency across our broader HRM business. And regarding our Gaming segment, our regional gaming properties demonstrated resilience throughout 2025 despite temporary headwinds, including roadwork and local curfews in Mississippi and minor weather impacts in December. Our full year 2025 same-store wholly owned casino margins, excluding racing, declined modestly by 0.8 points compared to 2024, primarily reflecting performance in Mississippi. Importantly, overall regional gaming consumer behavior in the fourth quarter remained consistent with recent trends, reinforcing the stability of our core customer base. We also believe the recently enacted federal tax legislation may provide a meaningful tailwind to both our regional gaming and HRM businesses. provisions such as the elimination of taxes on tips up to $25,000, elimination of taxes on overtime, enhanced deductions for individuals 65 and older and expanded state and local tax deduction limits could increase income for many of our customers in the months ahead. Our capital allocation strategy continues to support disciplined growth with a focus on shareholder returns. In 2025, we generated a record $700 million of free cash flow or $9.75 per share, following a record year in 2024. This consistent free cash flow generation demonstrates the strength and scalability of our portfolio. Maintenance capital was $70 million in 2025, and we expect to invest between $90 million and $110 million in 2026. These investments include incremental HRM-related capital in Kentucky and Virginia, including new ETGs in Kentucky as well as the continued enhancements of the iconic Churchill Downs Racetrack. Project capital was $205 million in 2025, and we expect to invest between $180 million and $220 million in 2026. The updated range reflects the timing of expected spend related to our Kentucky Derby capital projects and the Rockingham Grand Casino development in Salem, New Hampshire. We remain confident that these investments will generate attractive long-term returns. We also continue to return significant capital to our shareholders. In 2025, we repurchased more than 4.2 million shares and returned over $456 million through share repurchases and dividends. The dividend paid in January of this year marked our 15th consecutive year of dividends per share increases, a strong signal of our confidence in the company's future cash flow generation. At the end of December 2025, our bank covenant net leverage was 4.1x. Based on our expected EBITDA growth and the timing of new facility openings, we expect our bank covenant net leverage to decrease below 4x during 2026. In closing, as Bill said, 2025 was a strong year for our company with record financial results. We entered 2026 with strong momentum, multiple growth drivers and a unique portfolio of high-quality assets positioned for continued expansion. We remain focused on disciplined capital allocation, operational excellence and delivering sustainable long-term shareholder value. With that, I'll turn the call back over to Bill to open the line for questions. Bill?

Thank you, Marcia. We're ready now to take your questions.

[Operator Instructions] And our first question comes from the line of Barry Jonas with Truist.

I wanted to talk about the Derby. Any more color, Bill, you can give on early pricing and demand trends you're seeing so far for Derby 152 as well as the Derby Week. And I think, Marcia, your comments about $15 million to $20 million are extremely helpful. Just curious like what is the differential between the high and low end and the opportunities to exceed that would be helpful.

Thanks, Barry. So the Derby is firing on all cylinders. Certainly, when it comes to ticket sales, we've been pleased. We're in the latter stages of our sales process now. So we just plan on finishing strong and rolling that up as we get to the Derby Day itself. But so far, throughout the cycle, it's been very, very encouraging. And you heard Marcia give the $15 million to $20 million number that she gave. So sponsorships look good. Wagering, we won't know until the day of itself. But certainly, if you look at the trends that we've seen, those have been overwhelmingly positive as we head into 2026. So we have good expectations, strong expectations for that. And then I'm personally excited to add the additional day of racing. We have the interest, we have the horse stock. We have the customer base. We have the fan interest and the global interest. So we need to give our fans and our guests more of what they're asking for. So adding the extra day, I'm excited about that as well. So as we head through the end of February, all systems are go. And now it's about clear execution and just giving the team the resources they need to execute their jobs. And so I expect they'll do so.

And our next question comes from the line of David Katz with Jefferies.

I wanted to focus on Kentucky HRMs, which were kind of a standout in the quarter or noted as a standout growth. Just some more perspective on it. How much of it is being aided by ETGs? Where is that process and how far along it is? And when we look at Kentucky holistically over the long term, how much growth do you think there is still ahead to be had, if you can put some qualitative parameters around that?

Happy to do that, David. Thank you. So first, we're just rolling those out as we are into February. So ETGs aren't a part of the story from the prior quarter in any way. I think what you're seeing in Kentucky is the continued evolution of the product and the building of those markets, whether you look at Louisville or Northern Kentucky or Southwestern Kentucky, which services the Clarksville and Nashville markets. The product keeps getting better, the teams keep getting better, and we keep finding avenues to grow. So I think we have more in the hopper there. And certainly, going forward, as we look at the introduction of ETGs as a product, that's going to take place over a period of time. Right now, we're just rolling out, beginning the experiments with Roulette. That's the first product. And so that's something that will add to our offering, add to sort of the holistic experience of what our facilities offer and we'll build on those over the course of this year and the years to come. But I think what you're seeing is a powerful product that keeps improving and a team that keeps getting better and finding ways to harvest the market in Kentucky and surrounding Kentucky.

And our next question comes from the line of Chad Beynon with Macquarie Capital.

I wanted to ask about wagering growth, I guess, for this year's Derby and then for the future. Prediction markets have cut into some of the other sorts of mobile and digital online wagering. Curious if you've seen anything kind of in your segment thus far and if you think there could be any impact coming.

Thanks for the question, Chad. Sure. Happy to address that. So first, I'd say, in general, we see gravitation towards the bigger events. The Derby just getting bigger. The Oaks, I think a lot of people are surprised to realize that's the fourth most bet race in the United States, just getting bigger. So I think there's a flight to quality. I think good content is increasingly important. And that's why as a company, we focus more on that. We focus on building around Derby Day, building our big days, delivering content to our customers. With respect to the second half of your question, which was prediction markets, we operate under a different legal paradigm than other sports offerings in the United States. Pari-mutuel wagering on horse racing is conducted under the Interstate Horse Racing Act, which is a federal umbrella statute that essentially gives us a series of rights, call them intellectual property rights in our content. So to take wagers across any form, whether it be a sports wagering platform, another horse racing platform such as an ADW or a prediction markets platform, you need our express consent. You can't just do it without that. So we haven't agreed to provide our content to prediction markets. We feel like we have plenty of distribution, and we like the terms of our distribution. So that's our focus for delivering access to our content to the customer base out there. And for the time being, that's how we expect to proceed. And that's what's best for our customers and our constituents, including the horsemen. So fiction markets are not a part of the pari-mutuel wagering on horse racing story nor would I expect it to be any time in the future.

Our next question comes from the line of Jordan Bender with Citizens.

Bill, legislative processes are often harder to understand than not. So can you maybe just talk about what you're hearing in Virginia on the ground in terms of the iGaming bill of what might happen or might not happen in the state?

Legislative processes happen every year when the states are in session. So every year, we're heavily engaged and we monitor them and certainly participate to the extent that we can. So iGaming is bad news for Virginia. It's not law. It's something that's been discussed. And there are 2 different bills in the House and the Senate that have gone through. I don't think it's good for the environment in Virginia. We certainly have made that point clear. And I think a lot of legislators and certainly, when you see the polling, that's what the people think as well. So I would say that when you look at any legislative process, including the one in Virginia, there's lots of noise and there are lots of back and forth during the throes of it. But we firmly believe that iGaming is a bad construct for Virginia. We think many legislators there believe that as well. We continue to share our views and certainly listen to others. So I think it's important that folks don't react to the ebbs and flows of the legislative process and wait to see what the end of that process is. And we remain confident that the legislature and the Governor of Virginia will get it right in Virginia.

Your next question comes from the line of Dan Politzer with JPMorgan.

Bill, maybe a high level, we tended to think of Churchill as a sum of the parts story for some time. And I think that you mentioned some of the benefits or aspects of the portfolio where you do have vertical integration and cost synergies there. Can you maybe talk about high level how you think about the parts of the portfolio fitting together? Are there any elements where you feel like that you get inbounds on or that you feel like might not be natural fits over the longer term?

Sure, Dan. Thanks for the question. Always great to talk to you again. So we've built a really interesting collection of businesses. And we found ways to link those businesses and improve those businesses by focusing on a couple of key attributes. One is we look for growth margins, growth businesses, and then we focus with great vigor on margins. So as we've built our ADW business, we focused on margins. As we've expanded the track, same. As we got into HRMs, we looked at the technology services required to deliver that product, and we decided to vertically integrate there. So across the portfolio, we constantly evaluate what we can improve, where we see the most opportunity to improve and how all these businesses can fit together synergistically over time to drive improvements in margins. So I think that question is never answered for good or forever. I think it's constantly an evolving landscape under which we evaluate our businesses, and it's always an exciting part of what we do, do what we do well, grow our businesses, improve our margins and then see where these businesses fit within our company and within our industries as a whole. So that's part of our challenge. That's something we focus on a lot. And I think the answer today could be a different answer than tomorrow. It's a constantly evolving landscape with lots of opportunities for us.

And our next question comes from the line of Daniel Guglielmo with Capital One Securities.

In your remarks, you mentioned Kansas and Alabama as having Exacta customers. Are there additional U.S. states that could add historical racing down the road where you all can use your integrated platform and know-how for medium-term growth?

Well, we've been -- Dan, thanks for that question. We've been really thrilled with the results that we've demonstrated in Virginia, in Kentucky, in New Hampshire, now in Kansas, Alabama, et cetera. So we think that when legislators look across different jurisdictions, when they look at what HRM has delivered for the states that have implemented it, it's a really good story. It's a story that creates lots of jobs. It creates lots of capital investment. It ties in most of the time into key agricultural industries in the state. So it's a really good story that's really delivered for the states that have done it. So part of the challenge going forward now, part of the opportunity going forward is to get that message out into other states and tell the story because unlike other industries out there, we've delivered on our promises. We've delivered on the expectations. And really, it's time to explain that to states that consider it. So there are numerous states out there that at some level have looked at HRMs and it's percolating at some level. And our job and the job of our team is to help that story along and develop those relationships in other states so that we can see opportunities like we've seen in the states so far.

And next question comes from the line of Jeff Stantial with Stifel.

Bill, could you just talk a little bit on sort of what's been executed so far on early implementation of AI into your team's processes? Where have you seen the most success so far? And what's the road map look like here for further implementation in '26?

Sure, Jeff. Thanks for that question. I really divide AI into 2 categories in terms of how it can help our company. First, how does it make our customers better? That's -- for us, pari-mutuel wagering, we're not the house. We're not on the other end of the wager. We're there to help our customers. The customers play amongst themselves and all the other pari-mutuel customers who are playing in a pool across the world. So we are incented in every way to make our customers better. So for those -- so examples of how AI can help our business and help our customers, for those of you with TwinSpires account, you'll see the little button in the right-hand corner, and that's an AI product that gives you an analysis of each race, gives you some of the attributes and some of the indicators to look on -- look for in each race. We've rolled that out to 5 tracks, and we plan on expanding it and improving it and making it even more robust. But that's a general tool that will give you a nice leg up on any race you're looking at to give you a sense of what you need to pay attention to and why. We're also working on another tool that we expect will be delivered at some point in the future, which is completely interactive, and you can talk and ask any questions that you have on a specific race or a specific horse. So those are big priorities for our business and things we think we can deliver to our customers to make them better, and we have every incentive to want to do that. In terms of as a business as a whole, we're looking forward to what vendors and what providers can do out there to make us better at marketing, to make us better at cost management, to make us better at acquisition of everything that goes into our business. So we embrace AI. We think it's incumbent on us to find ways that it can help our business, and we'll continue to do that. But we're a company that embraces it and thinks, first and foremost, how do we help our customers interact and enjoy our product better and then how do we make our business itself better and drive higher margins.

And our next question comes from the line of Brandt Montour with Barclays.

I wanted to circle back on the Derby. I mean it's well noted. your confidence in your prepared remarks and some of the answers earlier. But thinking about pacing and what you said this year versus last year, I think it might warrant just a little bit of extra color given I think last year at this time, you were pacing ahead and sort of this -- it seems like you're way more confident this year. But can you give us a little bit more in terms of KPIs? Do you have more cushion heading into the final couple of months of ticket sales? Do you have more pricing or revenue growth embedded in what you've sold so far? Anything like that would be helpful.

Yes, Brandon, thanks for the question. So we've always had very good visibility to into the Derby, especially at this point in the process. I think last year, we were thrown off our game slightly because this is about when the tariffs were first introduced, and it disrupted our sales process for a period of time. This year, we're back on track. We're following our KPIs. We're watching ticket sales each week. We're comparing them to prior years. We're comparing them to plan. We're watching sponsorship and licensing. We're watching every avenue of our business. So generally, over the years, we've had great confidence based on prior track record on what to expect as we go along. And I think that's this year as well. And I think unlike last year where we might have seen some headwinds, especially with the sudden -- the shock of the tariffs when they were first started being discussed. This year, we feel like we're seeing tailwinds in particular tax bill benefits. We think something like that is only a material good guy for us. So to the extent we can predict the macro environment and how we think it impacts us, what we see out there looks more like tailwinds than headwinds for the remainder of the next 6 or 8 weeks.

And our next question comes from the line of Shaun Kelley with Bank of America.

I think in the prepared remarks, you talked a little bit about some of the Virginia core trends you were seeing through January. Just wondering if you could elaborate a little bit on what your expectation is for the balance of the year just for the ramp-up at the Rose? And also any thoughts about Northern Virginia casino competition, which has come up a couple of times and I think continues to be around even though I think it requires a referendum.

Thanks, Shaun. So yes, we've -- Marcia alluded to it in her comments. Certainly, the country has seen some disruptive weather, but our business has performed very strong in January, and she wanted to make a particular mention of that in her comments today. So Virginia is a story where particularly around the Rose, you can compare it with some of our properties in Virginia in terms of size and scope of facility. There should be a long runway, and we expect there to be a long runway of continued improvement and continued growth. It is about the most exciting market we could imagine in terms of the demographics, the size of the population, the wealth and the other attributes of the population. So we have a lot of work to do and a lot of growth to go get in Virginia. And the tail end of your question regarding another Northern Virginia casino or property, what I can say about that is that's something that we deal with every year in the legislature. It's something that gets talked about and discussed. It's a long way from happening. And also, it's a very big market. So there's plenty there for us, especially where we are in the Southern I-95 corridor of that market. That's where we're focused on. So we're going to be running our game plan to continue to build that. I think you can see from our numbers that we've demonstrated, we know how to do that in 2025. And in general, we have product improvement, product expansion and refinement of our models across Virginia, and that's what we're going to focus on in 2026. And I don't -- I guess I would clarify that I don't expect any competition in the Northern Virginia in the near term. And that's all I would -- I can ever comment on is what's going to happen now and in the near term. That's just legislative noise that we deal with every year. And right now, we just need to focus on building our business because that's where the opportunity for us is.

And next question comes from the line of Trey Bowers with Wells Fargo.

I guess just related to -- Marcia brought up the high free cash flow generation that you guys saw last year. And I know historically, you guys have kind of utilized share repurchase during periods of dislocation. But just wondering, is the company now looks forward to a period of pretty significant free cash flow, it feels like going forward. Do you guys think maybe potentially become more formulaic with repurchase? And as you think about kind of capital allocation with the shares at a level like this, does that change some dynamics in terms of a new project?

Yes, Trey, thank you. So yes, Marcia alluded to it, we're in a situation of strong cash flow. It's a reflection of how we've built our company and how we run it. And it's also a reflection of the changes in the tax law, which benefit us. So we're stronger than we've ever been. And certainly, it's a very positive outlook as we look forward. What we do with our free cash flow is something we talk about and think about every day, and we're very, very careful about it. You mentioned share repurchases. That's always and has been for a long time, an important element of our capital management and we value that or evaluate that against our other uses for cash. So as we look forward and plan the next number of years for our business, certainly, we will look at share repurchases and balance it against other things we want to spend our money on. And all is for your benefit, it's for the benefit of the shareholders. We're trying to make sure that we do things that generate the highest and best returns for our shareholders, and it's good to have options. So we balance that against leverage, against investment, share repurchases, et cetera. It all goes into the hopper, and we try to make the best decisions that we can. And it's good to have the option and it's good to have the cash to do so.

And our next question comes from the line of Joe Stauff with Susquehanna.

Bill, just a quick follow-up on electronic table games in Kentucky. Just wondering what the bottleneck is on your ability to increase the availability of those units in Kentucky. And then my larger question is really going back to the Derby. And just thinking about how well you've done strategically about on the event side of the business and ticket revenue and upgrading, getting returns on that. But just wondering, in a world clearly where sports rights and sponsorship demand is really skyrocketing, how you think about the opportunities both for media rights and sponsorship. I know you just renewed with NBC, but sponsorships. I mean, I'm sure they're like mega sponsors out of the Middle East and Japan and so forth. Just wondering how to think about that.

Thanks for the question, Joe. So first, ETGs. This is a new product. It's a thrill to be involved in something like this, just like I feel the same way I felt as we were developing HRMs. It's a thrill to be a part of something like this, and you need to do it right. So Roulette was the first game we got developed and through the Kentucky regulatory process, and we need to go demonstrate responsible rolling out and growth of that. And as we do that, we're working on other products. And I think as a team, we move as fast as we responsibly can, but it's important to do this right. So this is all good stuff to come. This is about doing this right, doing it in a way where the regulators are comfortable where the customer understands what we're doing, where we create the space on the floor, where we get the volume on the floor correct in terms of units versus other games in demand. So this is the beginning of that process. This is the beginning of a wonderful mountain to climb, and I'm excited to climb and it's going to take us time as we introduce new products and grow out the products as we introduce them. So all good stuff on that. No bottleneck, all just responsible, careful, thoughtful rolling out of something that's new. With respect to the Derby, yes, we've been flattered and very much increasingly focused on international, the Middle East, you may have seen we've introduced 3 new road to the Derby races that are based in the Middle East. So we have a total of 4 now. So lots and lots of interest from other parts of the world, particularly in the Middle East. And that's all good as we build our sponsorship and we build all the different avenues of how we grow the Derby. But certainly, we're privileged to stand on those that came before us. The Derby has a significant international component to its brand, but it's never been harvested. And this is the team that's now charged with harvesting that and growing it. And it starts with selling them the dream, the ability to get their horses to this race to get their participation directly with the rooting interest in this race. So I think you'll see focus and I think you'll see growth and development on that avenue for our company, and that's part of how we drive sponsorships going forward, high-end attendance going forward and other avenues, too, licensing, wagering potentially. Those are all payoffs for thoughtfully and successfully growing international participation.

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

Thanks, Andrew. Everyone, thank you for those great questions. Thank you for participating in the call today. We're always happy to have these calls and get a chance to talk about what we do here. We're proud of what we do. And now we're going to go back to our offices, put our heads down and get ready for the next big couple of things to come, including getting ready for the Kentucky Derby. So thanks, and we'll talk to you again soon.