Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2024 First Quarter Earnings 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. Phil Forbis, Vice President, Financial Planning and Analysis and Treasury. .

Thank you, Andrew. Good morning, and welcome to our First Quarter 2024 Earnings Conference Call. After the company's prepared remarks, we will open the call for your questions. The company's 2024 1st 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-Q 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, Phil. 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'll share some high-level thoughts on several strategic topics, and then Marcia 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. We delivered record first quarter net revenues of $591 million and record adjusted EBITDA of $243 million.

We were pleased with the performance of all of our segments, and our expectations remain high for the rest of the year. .

We hope our performance resonates with our shareholders. As a reminder that our long-term and consistent strategies have resulted in an extremely strong company that is delivering best-in-class growth with the pipeline to a great future. .

Let me update you on the strategic investments we are making in 2024 to drive long-term shareholder value. First, we have completed 1 of the most significant construction developments ever at Churchill Downs Racetrack, the new Paddock project.

Every guest who enters through our front gates will be treated to breathtaking views of the TwinSpires Paddock area. Those who have tickets in the newly created sections will enjoy spectacular seating and dining that will deliver a once-in-a-lifetime experience. .

the Homestretch Club, the First Turn Club and now the Paddock project. These investments illustrate what our team can dream, design and execute to enhance the special experience expected at the Kentucky Derby by each of our guests. .

Every year, we seek to surprise and delight our guests with something new and tangible as they explore Churchill Downs Racetrack. Paddock project has been a multiyear massive undertaking that fundamentally improves the entire venue.

As we unveil it for its first Derby, we will undoubtedly find both operational opportunities to improve upon and new ancillary investments to give the customer more of what they tell us they value. .

We believe our $200 million investment in this transformative project will provide a foundation around which to further innovate for years to come. We are also evaluating an intriguing smaller project for the 2025 Derby that will enhance the guest experience in another portion of our venue.

We anticipate that this will be a capital investment in the range of $60 million to $80 million and a payback of 6 to 8 years, which is our target range for Churchill Racetrack. We will provide a more detailed update on our 2025 plans at our next earnings call in late July. .

Next, regarding our HRM progress. Our disciplined approach to HRM investments demonstrated over the last number of years has led to excellent returns on capital from both our HRM properties and our acquisitions of related technology. We remain focused on expanding further in each of our key markets. .

In Kentucky, the construction of our Owensboro HRM venue remains on track with a planned opening in the first quarter of 2025. This will be our seventh Kentucky HRM venue, and it will be located just east of Owensboro, the fourth largest city in Kentucky. We are permitted under Kentucky law to develop 1 more HRM venue.

This 1 tied to and required to be located within 60 miles of our Oak Grove license. This opportunity is one in which we are very interested and devoting time and resources to exploring. .

In Virginia, our goal is to utilize all 10 of our potential Virginia HRM licenses and deploy all 5,000 HRM machines currently permitted under the law. As I discussed on our February earnings call, we have received approval to open our new HRM venue in Dumfries, called the Rose with 1,650 machines instead of the previous limit of 1,150 machines. .

We anticipate opening in September. The team has made great progress on the gaming floor and hotel construction and has kept us on schedule despite an extremely wet spring that affected outdoor road and utilities work. Dumfries is a great location, located right off Interstate 95 and just 30 miles south of Washington, D.C. in Northern Virginia.

I am very excited about this opportunity. A $465 million greenfield project in the Washington, D.C., Northern Virginia region will mark a meaningful step forward in growth for Churchill Downs. .

With the completion of the Rose by the end of the third quarter of 2024, we will have approximately 4,450 HRMs operational across the Commonwealth of Virginia.

We have a number of additional Virginia HRM development opportunities we are exploring, and we anticipate that we will have deployed in 2025, the remaining 500-plus machines we are permitted under law. .

We are analyzing the best options for the remaining HRMs and as well as deciding if we should shift any of the existing HRM to other locations to optimize the performance overall of our Virginia HRM business. .

As the first quarter financials reflect our Kentucky and Virginia operations are performing very well. There are a number of factors contributing to our results, including the continued integration and product improvement opportunities resulting from our Exacta acquisition.

The improvement of our marketing and operational processes, particularly with respect to the Virginia properties, which we have only owned since late 2022. .

The continued trend towards familiarity and acceptance by gaming customers of the HRM product. And with respect to Virginia, the enforcement of the ban on so-called skill games. All of these factors are helping our results, although it is hard to firmly distinguish the effect of each factor from the others. .

Turning to Exacta. The acquisition of the Exacta central determinant system technology has improved the performance of our Virginia HRM venues by enabling us to better optimize the gaming floors and reduce the technology fees charged to our venues. Because of this vertical integration, we have improved both our top line and our overall margins.

We are also in the process of converting approximately 10% of our gaming floors in Kentucky to the Exacta technology to improve our top line over the long term. The Exacta team has continued to make strides growing the portfolio of third-party HRM operations in Kentucky, Wyoming and New Hampshire. .

For example, we are now one of the central determinant system providers in 9 of the 10 HRM venues that are operational in New Hampshire, and we look forward to growing this business as those properties expand.

There are a number of new jurisdictions that are considering this form of wagering, and our team is looking forward to participating in these growth opportunities if they materialize. .

As we mentioned during our February call, we are making progress on the development of HRM-based electronic table games. This development work will only further enhance the performance of our HRM venues over the long term. Our Exacta team is demonstrating it can be effective as both a B2C and a B2B business.

That is a key cultural and operational challenge we wanted to meet to potentially participate in the range of market opportunities, and we are pleased the team is proving they can do so. .

Next, regarding our investment in gaming properties. We held the grand opening for our Terre Haute casino in Indiana on April 5, on time and on budget. We had over 12,000 people visit the property on opening day.

As a point of reference for how strong the initial demand is at the property, the total coin-in on opening day surpassed the largest day that we have ever had at Derby City Gaming, a great start. .

While the daily volumes have since come down, we have been extremely pleased with the performance, and we are well ahead of our projections. Since we will be a destination for people from Indianapolis, our 122-room hotel opening in mid-May should propel our performance even more. Again, a great start, and congratulations to our Terre Haute team. .

And finally, regarding our preparations for the upcoming Kentucky Derby, a week from this Saturday. The 150th Run for the Roses will be an extraordinary milestone for the longest continually run sporting event in the United States. Personally, this will be my 19th Kentucky Derby and 10th as CEO.

The buzz and energy is greater every year, and this year feels particularly heightened. Ticket sales, including throughout our new seating areas, have exceeded our expectations, and all of the metrics we track appear exceptional. .

We look forward to seeing many of you at the Kentucky Derby on May 4, and if you cannot join us in person, please be sure to watch the NBC Telecast beginning at noon Eastern Time. We will provide a press release with our preliminary results after the race like we do every year. .

In summary, the first quarter was another great quarter for us with record financial results. We were particularly pleased to overcome the challenging January weather, which was significantly worse compared to prior year.

We have positioned our company for strong growth for years to come with our pipeline of investments in the Kentucky Derby, HRM and other gaming venues, the B2B and B2C expansion of our TwinSpires and Exacta businesses and disciplined acquisitions. .

We are delivering for our shareholders, and we have been consistent in our strategies and execution over an extended period of time. We also have a strong pipeline of growth opportunities we are developing beyond the ones we've announced.

We continue to expect to drive a material increase in adjusted EBITDA and free cash flow in the coming years, while we maintain one of the best balance sheets in the industry. .

With that, I'll turn the call over to Marcia, and then we will take your questions.

Marcia?.

Thanks, Bill, and good morning, everyone. I'll start with a few insights on our financial results and then provide an update on capital management. .

First, regarding first quarter financial results. As Bill shared, we delivered record first quarter revenue and adjusted EBITDA and our Live and Historical Racing segment, our HRM properties in Virginia and Kentucky performed extremely well during the first quarter.

In Virginia, our HRM properties increased adjusted EBITDA by nearly $13 million or more than 27% compared to the prior year quarter. Savings related to the Exacta transaction provided nearly $6 million of improved economics to our Virginia HRM properties.

We also benefited from the opening of the Rosie's Emporia in September 2023 and as well as strong growth in our other Virginia properties. Our Virginia HRM properties, excluding racing, generated a combined 54% margin during the quarter, up 5.9 points compared to the prior year quarter and up 4.4 points on a sequential basis. .

Our Kentucky HRM properties increased adjusted EBITDA by $8.5 million or nearly 20% compared to the prior year quarter. Nearly half of this growth was driven by our Northern Kentucky HRM properties.

We did have a $2.7 million decrease at Churchill Downs Racetrack compared to the prior year quarter related to increased maintenance and other expenses in preparation for the 150th Kentucky Derby. .

In our TwinSpires segment, adjusted EBITDA grew by more than $10 million compared to the prior year quarter. The Exacta business contributed more than $9 million of adjusted EBITDA to the TwinSpires segment from third-party customers and growth in our Virginia HRM properties.

Our TwinSpire Horse Racing business saw a modest decline in adjusted EBITDA in the first quarter, primarily as a result of lower retail volume from extremely cold weather conditions in January. Weather-related cancellations resulted in an 8% reduction in U.S. Thoroughbred races in the quarter compared to the prior year period. .

And last, regarding our gaming business, our regional gaming properties performed relatively well in the first quarter despite being impacted by inclement weather in January. We did see the majority of our properties top line as well as adjusted EBITDA improve in March.

As we anticipated, our first quarter same-store wholly owned casino margins were down 2.4 points compared to the same period in 2023, primarily as a result of the challenging January weather. .

Turning to capital management. We generated $242 million or $.3.24 per share of free cash flow in the quarter, up 21% per share over the prior year, primarily from the strong cash flow generated from our businesses.

And regarding maintenance capital, we spent $12 million in the first quarter and continue to expect to spend between $90 million and $105 million in total for the year. .

Regarding project capital, we spent $143 million in the first quarter and continue to expect to spend between $450 million and $550 million in total for the year. Regarding share repurchases, we repurchased $22 million of CDI shares in the first quarter. At the end of the first quarter, our bank covenant net leverage was 4.1x.

Based on our capital investments and the timing of the opening of our new facilities, we expect bank covenant net leverage to remain in the 4x range for the remainder of the year. We then expect our bank covenant net leverage to decline in 2025 as our investments in Kentucky, Virginia and Indiana began to deliver significant adjusted EBITDA growth. .

Overall, we are very pleased with the record results that our team has delivered in the first quarter, and we are well positioned to continue to grow through the remainder of 2024 and to 2025, fueled by the tangible pipeline of growth initiatives that Bill discussed. This is my ninth year as CFO and will be my ninth Kentucky Derby next week.

This is truly a special time of the year for our company, and this year's Derby is going to be even more spectacular than ever. I'm looking forward to sharing the experience with many of you in person next week. .

With that, I'll turn the call back over to Bill so that he can open the call for questions.

Bill?.

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

[Operator Instructions] Our first question comes from the line of David Katz with Jefferies. .

I just want to sort of dispense with the issue of leverage. And then Marcia, I heard your commentary about sort of staying around the 4x level. And I want to -- so to put that in the context of Bill, something you said about potentially more opportunities out there that you're evaluating that could enter the mix.

If you could just talk about your leverage tolerance near term, call it, next 6 to 8 quarters and how that may or may not roll?.

Sure, David. Happy to do that. Good to talk to you and look forward to seeing you next week. I heard you were going to attend. Our target range is 3 to 4x. That's where we target leverage. But we're willing to go above that when we see responsible opportunities that are worth pursuing.

So over a number of years, that's how we've consistently thought about it. We look to be in a range, but sometimes opportunities present themselves when they do, especially when you work hard consistently over time to find the opportunities. And so we'll bump up from that when it's warranted. .

Okay. And just secondarily, my perception is that the expectations for this year's Derby are quite high. And I'm always trying to just make sure we keep numbers in the right place.

Can you maybe drill down a little bit with us from last year's Derby in that quarter and maybe help us sort of bridge some of the pluses and potential minuses, if there are any, just to make sure we all keep our numbers in the right place coming out of this year's Derby. .

Not totally sure I followed that question, David. Would you mind just framing it a little bit differently, I don't want to start answering a different question, and that one, I'm not quite sure I got it. .

So what I mean is if we take last year's Derby earnings and there's really year 2 of turn 1 experience, which adds -- probably add something. Then we have year 1 of the Paddock. Then we have some pricing increases that you probably took. We look at your deferred revenue increase in your filing, which implies some ticket price increases.

How do we sort of walk across those upside blocks and just keep them under control so that people -- the likes of me don't get carried away with my Derby estimates. .

Well so, coming out of Derby. Derby night will actually put out a range that will help clarify that. I think at this point, there are things that build on each other year-to-year. You threw me off with the first formulation of the company because of the point about puts and takes.

Generally, things are moving in a positive direction year-to-year, and that will be the case for this year. .

So I would ask you to just hold on, and you'll see after the Derby on -- after the Derby race on Saturday night, we'll put out a range where we have the benefit of reflecting on all the activity of the day. So not too much longer before we can provide more specificity.

But here, 1 week out from the event, I've told you all that I can responsibly tell you prior to the event itself. .

And our next question comes from the line of Barry Jonas with Truist. .

I'll just keep it to one question. Interesting to hear about the strong start at Terre Haute with the opening.

Just curious, how should we think about the ramp from here to hit your ROI targets?.

Well, for us, we always underwrite projects looking at year 3 EBITDA, and we've been fortunate that some of our projects have been so strong that people forget to get that, and they see the return immediately. They see the return in year one. But generally, properties take a while to get the maturity. It takes a while to build your database.

It takes a while to understand your customers, to understand the extent of your range. .

So all of those things build and as the team gets more experienced on the ground, they perform better. So generally, it takes at least 3 years to get the maturity and that's how we underwrite the projects. .

In the case of Terre Haute, things started pretty strong. We're really, really pleased with how we started, but there are lots of things we've already learned that we're going to improve upon and get better at. And so I don't think this is one where we'll be running a big gauntlet of waiting for the property to start to blossom.

I think it's going to start at least so far -- what we've seen so far it's going to start relatively strong. .

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

Nice results. I wanted to focus on the Exacta impact thus far, particularly on the Live and Historical Racing margins. Looks like that certainly had a nice outsized impact in the first quarter and should continue.

Can you just kind of help us think about where we are in the Exacta benefit journey? A lot of it, I think, is just kind of removing in expense, but we've talked about some revenue benefits as well. So maybe if you can just kind of frame what inning we're in with Exacta, maybe what's been done and what's on the come. .

Sure, Chad. So I would put it in a couple of different buckets. The first bucket is what can Exacta do for our existing properties. How can it help us optimize our floors, how can we improve our margins. All the things that go into our existing properties. That's one bucket, and we're not done there, and I hinted and talked on some of that in my script.

We're not complete with the process of figuring out how to improve our existing operations by better understanding and utilizing the capabilities that we have from Exacta..

The second category is, well, how can we improve the performance of this business with third parties. And that's a good place to be because like our businesses, our own HRM businesses, these are businesses that are still in the relatively early innings of their maturity. So they're still moving towards maturities and so are other third parties.

So that scenario where we can get better and those businesses that we serve will get better, and it's an opportunity for us to grow. .

The third bucket, I would say, are new jurisdictions within the United States.

We don't have any we want to point to or talk about today, but certainly, the HRMs is a gaming product, is something that's discussed and evaluated in different jurisdictions in the United States, and that's something that I think will be a potential growth area for this business over time. .

And then finally, the last bucket I would say is international. We've had some inbound from international jurisdictions. And I think that might be a place for us to grow over the coming quarters as well. .

And our next question comes from the line of Jordan Bender with JMP Securities. .

I want to kind of follow on David's question. There's been a lot of positive talk around upcoming Derby. You've mentioned in the past, just the step function growth in '24.

But as we think to '25, you mentioned incremental project for next year, but can you just talk to the pieces that you're putting in place to kind of ensuring that you're growing off of this outsized growth this year. .

Yes. I think that's a really good question. I think one of the things that's always most meaningful to me and what I'm most proud of is how our organization learns, our organization really prides itself on learning and improving. .

So I think when we introduced a project of the magnitude of the Paddock object, we're going to see a bunch of things that we can do better this year, and we're going to see a bunch of ancillary opportunities that we can pursue based on the footprint we are just establishing with the Paddock project.

So I view significant projects like this one as a beginning. .

I think it will unlock a lot of learnings for us, and our team we'll be hungry to find those areas where we can grow and improve move on.

So part of what comes forward in the subsequent years is that piece, learning to use what we've done better, but also we'll be looking at other projects and other parts of the facilities, and we'll be looking for other ways to monetize everything about our facilities sponsorships, TV rights, better wagering opportunities, all the different categories that go into driving the entire pie.

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So it's a process of constant improvement, but the key to unlocking it is the physical facility and the energy that our guests bring to that when they interact with it. .

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

Maybe just one quick one from us on the Kentucky HRM business. I think it's about 5 months now that you have under your belt operating Derby City Downtown. Just curious to get your thoughts on how you think the ramp there is progressing.

Anything surprising so far relative to your underwriting and operationally any challenges that kind of popped up that you're still working through? Just any thoughts there would be great. .

Derby City Downtown love the facility, love what our team has done there. We thought it would start relatively modestly because a big component of its business is going to be driven by tourism and downtown traffic. And opening in December and the height of winter in Louisville is not the ideal time to open.

So what we're seeing is pretty consistent ramping. And I go back to what I said in response to one of the other questions. We always underwrite the deals or the greenfields that we build to a 3-year EBITDA model. So here, this is one where we're going to have to ramp and continuously improve and get better. .

So I'd say it started relatively modest.

It's not a material contributor to the Kentucky engine, the Kentucky HR (sic) [ HRM ] engine that we've established, but it's moving in the right direction, and it's about where we thought it would be, and let's get some of the spring and summer months under our belts and then we can really have a much better sense of what to expect in the long term.

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

I just wanted to follow up maybe on just trying to understand, again, kind of like the amount of [ said coin ] in the HRM margins, and I wanted to ask how Turfway factored in that? It seems as though you're gaining some momentum. And I was wondering if you could kind of provide an update on kind of where you see Turfway relative to targeted margins.

And then just quickly on the electronic table games that you were talking about, Bill. Is that more '25 or '26. And do those electronic table games count relative to the limit of machines in the various jurisdictions. .

Thanks, Joe. Thanks for those questions. I'm going to start with the last one and work backwards. So first, when I was talking about the categories for Exacta, I should have mentioned electronic table games. I think that's an important one. I mentioned it in my script, but that's one we've worked really hard on. And I do feel pretty good about that.

And remember, before a product like that reaches fruition, it goes through testing, it goes through the regulatory process, it goes through iterations. .

And there are also numerous products that fall under the definition of electronic table games. So that's one that I can just tell you that we're very engaged on. We're very focused on, and it's coming along according to our plans.

But I don't want to give you a time and date on when you'll see that for the first time because that's not entirely with our control. I just want to illustrate that it's a focus of ours. And we have good expectations for the timing and the quality of what we deliver there. .

Secondly, with respect to Turfway. Turfway is still ramping. It still has room to grow. It's improving every quarter. It's improving on all fronts. Certainly, one of the categories that can lend to its improved performance over time is the flexibility and additional product we get from Exacta, but it's a much bigger puzzle and equation than that.

So that's one that I think our team is making consistent quarter-to-quarter progress, and I'm satisfied with that and have high expectations for continued improvement there. .

But I wouldn't describe that as anywhere close to a mature property. That's one that's more consistent than with what we've seen over a long period of time of a slow and steady ramp to maturity. .

I see. And just to clarify, the electronic table games, that would be considered -- I assume it's obvious, so I just want to confirm, it's HRM, therefore, it would be subject to the cap in terms of the various machines that you have in each jurisdiction. .

Yes. Kentucky doesn't have a cap, Virginia does. The Virginia cap has 5,000 machines under the current formulation of the law. Kentucky doesn't have the same construct. So every jurisdiction has a slightly different construct. There are no 2 jurisdictions that are the same. Some have caps, some don't.

But certainly, the premise of the question I completely agree with an HRM electronic table game is exactly that. It's an HRM machine and it will be subject to any caps that are there under the law. .

And our next question comes from the line of Dan Politzer with Wells Fargo. .

Bill, Marcia, I wanted to ask about the regulatory environment. I mean there's been a lot of news flow, particularly in Virginia, as it relates to the skill-based games and some news flow on the competitive environment as far as Petersburg.

So maybe I know this is a unique form to comment, but to the extent that you can, any way to think about broad strokes, how you see this shaping up over the next kind of year or maybe even longer term into the future?.

We expect an additional Class III license to happen in Petersburg, we've expected that for a while, and all our plans really are constructed expecting that. So no issue there. That's expected, and that's part of the state's two-pronged approach with HRMs and then also traditional Class III -- limited Class III gaming license. .

With respect to other things that can happen in a jurisdiction, including Virginia, we roll with those punches. We participate in the regulatory and legislative process. We feel really comfortable with the business we have in Virginia, and we will look at and address any regulatory or legislative opportunities that we see or any risks that we see.

And certainly across the different jurisdictions that we participate in, it's fairly common to see legislation you like or don't like in any given session, and it's just part of the construct of the modern gaming company to evaluate those and participate rigorously in the legislative and political process to best shape your opportunities as a company to the extent that you best can.

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

The B2B deals with DraftKings and FanDuel have been in full affect for over a year now.

Can you just talk about those relationships and how they've gone compared to your expectations? And are they doing anything different for this year's Derby versus last year?.

Yes. Thanks, Dan. Good question. The relationships have gone very well. Ability of our teams to work together and make progress together has really been very satisfying.

I think it's fair to say that the marketing around recruiting players, whether it be for -- when it's for horse racing, whether it be for a product like TwinSpires, that's a single product asset just focuses on horse racing or if it with the case to DraftKings or FanDuel, a multiproduct platform. .

When it comes to horse racing, it's all about the Derby. That's the opportunity to really reach deep into a broader customer base to recruit customers and interest them in horse racing. So I think as we approach 2024, we've already seen some of the activities of not just DraftKings and FanDuel, but others around horse racing and around the Derby.

And we encourage that, and I think a real check-in point on the progress really will come after we get a chance to reflect on the results we see for this year's Derby. .

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

Just two relatively small ones for me going back to Exacta. First, I was just hoping you could give us a little bit more of a sense of some of the optimization initiatives in Kentucky. You talked about converting roughly 10% of the gaming floors there, and that that's going well.

How are we seeing that change manifest itself? Is that revenue Boost? Is that margin? Is a little bit of both?.

And then kind of the second part, and this is a very high level one. But Bill, in your prepared remarks, I felt like maybe just tone wise, I might be reading way too much into it, but it sounded like maybe your experience with B2B here has been successful or could be a little bit of a proving ground for something bigger on the strategic side.

So I kind of wanted to see if I was on to something there, and you could elaborate at all there?.

Well, with respect -- sure. Thanks, Shaun. So with respect to the first question, in Kentucky, to the extent we can modify and introduce new content, it improves our top line. So that's part of our focus there. And I had made a remark in my prepared remarks about how there's a bunch of good things going on when you talk about HRMs.

There are a bunch of good factors. And if you try to slice and dice those factors and say, well, everything is attributable to this factor or that factor, it really becomes somewhat artificial. .

So of the things that are going on with respect to HRMs that are positive, we're learning how to optimize Exacta product and competitor Ainsworth product on our floor. We're learning how to introduce more product and then optimize with respect to that product.

We're also generally seeing better acceptance of and familiarity with HRM products by our gaming customers. .

It's, I think, becoming increasingly accepted as a very competitive gaming product. And we're getting better at marketing it, and we're getting better at operations. So there are a number of factors in general those to name but a few that are contributing to the general ramp-up that you see.

And while we spent a lot of time at moments in our companies trying to slice and dice and figure out why this do taste go good. .

The truth is there are a number of good ingredients that are contributing to a very good soup for us at this point. So it's more than one thing.

The second question with respect to B2B for Exacta, and just my experience over my career in business, when you have a company that is both a B2B company and a B2C company, those can present cultural challenges. .

So for us, we really focus on it with TwinSpires and Exacta, providing great service to us to Churchill Downs in the businesses that we vertically integrated, but also meeting the expectations of third-party customers out there, and I'm thrilled with how Exacta so far has been accepted and how the team is performing. .

And I do think that when it comes to HRMs and the central determinant technology, there are lots of opportunities that we won't be able to always participate in as a B2B operator ourselves.

It's just not always -- we're not always going to see the stars aligned such that we have a great B2B opportunity, yet we still have a great business that can help provide returns with respect to those opportunities as a technology service provider. .

So that's a great thing about the Exacta business, and it's one we want to emphasize and pursue. So I couldn't be happier with how Exacta has started as a part of our family. .

And I'm also excited about the different potential opportunities that we see beyond what we're currently doing.

And I'm also excited about how well the team has handled building relationships with third-party customers, even in jurisdictions where we have our own brick-and-mortar facilities that in some level or at least in that same jurisdiction, so at some level, compete. .

Our next question comes from the line of Ben Chaiken with Mizuho. .

You have the opening of Big Rose later this year. I guess, do you look at Little Rose as a comparable on evaluating relative performance? Or is the property too small to do that comparable analysis? And then I guess related, you mentioned 500 to 600 additional machines that you could potentially add in Virginia.

At your discretion, I know you said the process is ongoing, but maybe just more color on how you think about where and when those are added?.

Sure, Ben. So first, the Rose is a much larger facility with higher finish outs, better finish outs, a hotel and it's designed to compete as a more traditional big box gaming facility with all the attributes and amenities that we're allowed and have space for. So we don't view it as the same thing as the Rosie's that we have.

And we'd also point out that it's also being situated in a market that's pretty exciting opportunity, pretty large market, the Washington, D.C., Northern Virginia MSA. .

So the Rose is not a Rosie's, and we haven't approached it like a Rosie's, it's a much more significant investment with more upside. I'd point out somewhere around 6.5 million people in the MSA, no other gaming facilities on the Virginia side. 175,000 square foot facility -- gaming facility.

So lots of attributes about that market that made us approach it in a different way. .

With respect to the other remaining 500 machines, wish we had more, wish we had more to deploy, but with respect to the other 500-or-so machines we have available to deploy somewhere in the state of Virginia..

I don't want to go deeper at this racking and stacking of where we think they best go. But we have numerous opportunities -- more opportunities than we have machines, and so we're completing our work on that, and we'll have more to share.

But as I said in my prepared remarks, we do expect that those will be deployed in 2025, which isn't all that far away. So we'll be making our choices and taking action relatively quickly. .

Understood. On the Big Rose comment, I was actually meaning that in a complementary way just because the win per day is so strong at Little Rose. That's really -- so I think I might have phrased it in a tough way to follow. I just meant performance of Little Rose on a machine -- okay. .

Well, no, I appreciate that. Obviously, the Rosie's -- the Little Rosie's have performed extremely well with often a limited number of machines. We often wish we could put more machines in the facilities that are Little Rosie's. So I took your point. I was just making the larger point that this is a much bigger swing.

This is a much bigger swing and you should look at it as a more traditional Class III-like facility because we have that opportunity to do that in that market. But the Rosie's that we have actually perform at a very high level and a very high per unit win rate, and we're very pleased with those. But this is a bigger bet.

It's a $465 million project and a 6.5 million people market. And so we have approached that a little bit differently from every perspective, including finish outs and amenities. .

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

Thank you. We always appreciate the questions and the interest in this call, and we appreciate everybody's trust on us and investment in our company. We will be good stewards of your capital. Our team now having completed -- this process is 100% focused on delivering a fantastic Kentucky Derby 150. .

So beyond the lookout, not only for the day of the race, we hope you all participate in whatever way you can, but also be looking out that night for some feedback from us on how the day went, including from an economic perspective, and we'll keep doing our thing to meet your expectations and exceed them. So thanks very much, everybody.

Happy Derby, and talk to you soon. .

Thank you for participating. This concludes today's program, and you may now disconnect..