Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2019 First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I’d now like to introduce your host for today’s conference call, Mr. Nick Zangari, Vice President, Treasury, Risk Management and Investor Relations.

Thank you, Kevin. Good morning and welcome to our first quarter 2019 earnings conference call. After the Company’s prepared remarks, we will open the call for your questions. The Company’s 2019 first 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’d 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 report 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 today’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, Nick. 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. As most of you have seen, we issued an 8-K earlier this week redefining our segments for external financial reporting purposes to reflect the evolution and growth of our company. Marcia will provide more color on this decision. I will share some thoughts on our first quarter performance and the upcoming Kentucky Derby. Marcia will then provide additional details on the quarter and on our capital management. After she is finished, we will be happy to take your questions. First quarter has been very busy. We closed three acquisitions, completed the preparation for the 2019 Kentucky Derby, including the new Starting Gates suites, rooftop lounge, broke ground on our Oak Grove Kentucky historical racing machine facility refinanced $600 million of our variable rate debt into an eight year bond and completed a 3-for-1 stock split. We did this while delivering double-digit revenue and adjusted EBITDA growth for first quarter, compared to prior year. Our net revenues for the quarter were up 40% and adjusted EBITDA was up 52% over prior year. Those are meaningful increases and there are few key developments that drive that year-over-year change. In January, we completed the acquisition of Presque Isle Downs and Casino, an excellent brick and mortar facility, which also provides us an opportunity to launch our retail BetAmerica Sportsbooks at the Casino and launch our BetAmerica online Sportsbooks and iGaming platform across the entire Pennsylvania market later this year. Next, in early March, we completed our acquisition of approximately 61% of Rivers Casino and Des Plaines, Illinois, which proceeded to deliver a strongest March ever with respect to…

Thanks Bill, and good morning everyone. As Bill said, I will provide some details on our first quarter 2019 financial results and then provide an update on our capital management plans. As you review our first quarter financials, it is important that you also review the 8-K that we filed on Tuesday after the market closed. The 8-K walks to the changes we’ve made to our segments for financial reporting purposes and also realize our historical financials to the full year 2017 and 2018 as well as quarterly financials for 2018 and the new segment format. We believe our new segmentation will provide better transparency and clarity to our results in three areas. First, the Churchill Downs segment, we’ll provide the financial results of Churchill Downs race track, including our iconic asset, the Kentucky Derby, as well as the emerging financial results of our new historical horse racing machine facility that is named Derby City Gaming in Louisville, Kentucky. As we’ve discussed in the past, the Churchill Downs race track licensed supports Derby City Gaming, which is located on the Churchill Downs ancillary training facility property near Churchill Downs race track. Second by aligning our race tracks with the casinos that the license supports, we’ve improved the alignment of our management and our financial reporting. And lastly, we will no longer allocate corporate overhead out to each of the segments for external financial reporting purposes. We’ve included additional disclosures related to our wholly-owned gaming margins and same store wholly-owned gaming margins as an exhibit to our earnings release. We believe this will enable the analyst who cover our stock and our investors to more easily compare our industry leading casino property margins with our competitors. So turning to our first quarter 2019 results, we reported first quarter net revenue of…

Okay. Thank you, Marcia. Everybody, if you have any questions, we are ready to take them far away. Thanks.

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

Hi. Good morning everyone. Congrats on the quarter. I wanted to just start off and get some perspective from you on, I mean, I appreciate your commentary about the Derby. We’ve thought about this event and the property and the context that, it can grow at a certain trajectory in the high single digits, et cetera. One, if you could just share a bit more color around what we’re – what you’re expecting for this year and then, paint us a little longer-term picture of what the Derby can be going out in the future, please.

Sure. With respect to this year, there are a number of metrics that we already have very good visibility into such as ticket sales, sponsorships, media, so everything this year looks very strong as I mentioned the Rooftop Garden Lounge, we’re very pleased that in the first year where it hasn’t ever been a product that’s been available to people before, so there isn’t a word of mouth. So despite that we still sold it out. We’re also excited about the opportunity with respect to Japan and pushing our product into Japan. So all things so far look really good. I know a question that is often on everybody’s mind is well, what about the weather? What’s the impact of the weather? Look, we don’t control the weather, so we focused on what we can control and we prepare the best we can around that. So that being said, the last few years seems like we’ve had very rough weather last year being the wettest Derby. And it wasn’t – but a couple of years ago where we had the coldest, so hopefully we get a break on weather, but ultimately the bulk of the economics are going to flow in independent of that. So I feel very, very good about this year’s Kentucky Derby. Another item worth mentioning is our relationship with Quicken Loans, which is a new sponsorship opportunity for us, their program where they selected out of a raffle, 20 participants, each of them is coming to the Derby and gets assigned a horse. And then for the lucky person whose horse actually wins the race, they get up to $250,000 of their mortgage paid off. That’s been a huge success. We understand from our Quicken Loans partners and so that’s the hope, the type of thing…

Yes, I do. Yes. And one of the approaches to adding to the Derby has been to spend capital within the span of respective Derby. And I know that you may have started to think about the prospect of a hotel or a boutique casino property or other kinds of larger assets that it would expect, would take longer than a Derby cycle to construct, any updated thoughts to that end?

Certainly, those are very logical things for us to be considering. Further hospitality at the Derby, particularly around a hotel. And certainly the way our license works with respect to historical racing machines gives us the right to place those machines at the racetrack. So certainly those are things that we think about. But we don’t have anything specific to announce at this time on those items or any others. But as I mentioned during my comments, we think by the next earnings call, we’re going to be more specific on some of our growth initiatives, including capital investments for the future.

Got it. And if I can ask one other question about TwinSpires, and I heard your commentary and some of the detail that you’ve given. We do, I guess get a sense in our travels that competition for that business may be ramping. Are we hearing correctly to the degree that you can talk about any strategies to mitigate that, would be helpful as well. Just thinking about how we should model the trajectory of the business going forward.

In the previous quarter, we had talked a little bit about competition at the higher volume player segment and some of that continued in the first quarter, that was really some of our competitors following an aggressive strategy with respect to rebating. And we’ve always been hesitant to adopt that strategy because it’s a slippery slope. Some of that pressure continued into the first quarter, but largely mitigated. So it wasn’t a topic that I really highlighted in my comments for first quarter. But I would say that there was so much noise in the first quarter because of the change in content with Oaklawn Park moving premium race days out of the first quarter and into the second quarter. And with the turmoil at Santa Anita out in California where we not only is that premium content, but there are a lot of west coast customers of our business that look at the west coast content. With some of that turmoil going on, I would be really hesitant to take first quarter any sort of watershed moment where we needed to – where we thought we really identified long-term trends. There’s just too much noise. So having been involved with this business since before it started and through every aspect of its evolution over the last dozen years. I would say that eyes wide open, watching it carefully, I wouldn’t take any long-term trends out of the first quarter. And I would say is we look in the second quarter as we approached the Derby I feel very comfortable and confident about the performance of the business right now.

Okay. If I can ask one more detail and then I will step aside. Around Arlington Park and for those of us that are just trying to keep tabs on, any political winds of change around the possibility of slots at that track. Is there anything that is discussable at this point to that end?

Well, I would – not in great detail, but I would say in the legislative cycle that’s our session that’s going on right now. There’s a lot of talk about sports wagering. There isn’t as much talk about a full scale expanded gaming. So we participate very heavily and pay very close attention to legislative and regulatory developments in the state of Illinois and we are so now, we have two properties for which we need to do so, one is our significant investment in Rivers, which has a very important business for our company in the Northwest Suburbs of Chicago and then Arlington Park, our traditional horse track. So we have two reasons to pay a whole lot of attention to what goes on there. But right now, I’d say it’s – as you often see in Illinois, it’s in session, it’s hard to draw any conclusions about what’s going to happen going forward. So we’ll monitor and make the best decisions we can. But certainly we don’t want to talk more broadly about long-term strategies, and so it is clear what the legislative body in Illinois is going to offer the industry in that State.

Got It. Thanks for your comments, nice quarter.

Thanks, David.

Our next question comes from Daniel Politzer with JP Morgan.

Hey, good morning everybody, and thanks for taking my questions. So I mean Derby Cities are entering nicely and I think it was particularly impressive to us the first quarter margin of 41%. And Bill, if you could elaborate on what you see there long-term and the opportunity? And then I have a follow-up regarding Oak Grove in that regard too.

Hi, Dan. Yes. So we’ve been very pleased with the start of Derby City and I’m really proud of our team, that’s a project that Bill Mudd worked on for a couple of years before any of you were even thinking about potential facility there. So a long time and a long effort to think through our strategy for our property there and to work with our game manufacturer to create compelling games that would be competitive with class-3 machines that we have across the River from Louisville on the Indiana side. So I think we’re in the early innings of the property. I hope over time, we can improve our selection of games, I hope over time perhaps we can add manufacturers. I think we can get better at running our facility. I think we can understand our customers better. I think we can market to them better, as we learn more about them and as we learn the true competitive positioning of the product in the marketplace. So I think, there are a lot of lessons still be – still to be learned in Louisville. And I think there is a lot to the idea that we’re expanding the market, not just trying to take share from what may be across the River. And I think, just as exciting is what we can take from Derby City Gaming and our Louisville experience and apply down to Oak Grove. When we open that property, which is a more significant capital investment, $62 million for Louisville, approximately $204 million Oak Grove Kentucky. So everything we can possibly learn to get better at running that operation. We want to take those lessons and apply them down South. Bill, do you want to answer, go ahead.

Thanks, Dan, I want to – yes, I would say Dan as Bill mentioned in his comments, we’re adding another 100 machines to the floor. We hope to have those installed by mid May and just last week for example, we introduced eight new themes to the floor and five of those eight games are in our top – of those eight themes, I should say, five of those themes are in our top 10 already. So we’ll continue to develop that product and continue to work with our partners to develop that product, and I think we’re going to even better. And in terms of the ramp up at Derby city, it’s taking a while just for people to kind of understand what a historical racing machine is and I think, we’re getting over that barrier here, we’ll have to do the same thing down at the Oak Grove facility. But we’re very excited about it.

So with the Oak Grove, I mean, how should we think about the return relative to the Derby City? I mean, is it like getting into different property and a different footprint and different area. But I mean, can you, I guess talk about the puts and takes that how you think about the return potential for something like an Oak Grove relative to Derby City?

I think the Derby City return is sort of best-in-class and we’re very pleased with what we’ve seen there. And certainly we expect a return down in Oak Grove that more than exceeds our hurdles. But I don’t want to give more specific than that. And I would say that we’re going to have a few more amenities down there, we’re going to have a hotel, we’re going to have an event center, all the items can affect margin somewhat. But I don’t want to give more specific than what I just offered. And just reiterate that we are more and more comfortable and more and more confident that we are understanding, what we can do with historical racing machines and when we do open up down there we’ll be better than - operationally than we were when we first opened up here, because we will have taken all the learnings from what we’ve learned in Louisville. So I’m optimistic, but I hope you understand I’m not going to be real specific.

Yes, and I appreciate that though. And then just turning to Rivers, I think that came in along with lot of your – other of your properties much better than expected. So could you maybe talk a little bit about what you’ve seen there so far and how it’s performing, I guess, relative to maybe your initial expectations and maybe even on a year-over-year basis? And how do you think about the opportunities for growth there?

The property had a very good marks and the property is a property we feel like we understand pretty well because it’s been in the marketplace for a long time. So when we decided to pursue an investment there, we had a great deal of confidence in the market. We had a very – a great deal of confidence in that team and our partner. And I would say from our perspective, we feel it’s a very stable good operating environment for us to make an investment. When we think most about the future, we are optimistic and willing to work hard to see if we can expand some of the options or the properties such as sports wagering and online wagering. And those may happen, they may not happen, they may happen soon, they may happen in the future, it’s hard to be specific and it’s not responsible to be specific on a call like this. But certainly those are avenues that we’re interested in as a company, we’ve explained that we’re interested in those options for different markets and those options should be in play in Illinois over time. So legislative advancements, legislative strategy is an important part of expanding the opportunity for the property, even without that, we feel very, very good about what that market holds, given its demographics, both in terms of population, density and wealth.

All right, great. Thanks so much for the color and congrats on a good quarter.

Thank you, Dan.

And I’m not showing any further questions at this time. I’d like to turn the conference back over to our host.

We appreciate your investment and confidence in our company and your interest in our company. I hope you all enjoy the Kentucky Derby. We’re about to exit this conference room and go to work to help our team prepare for that event, that’s what we’re focused on now. So fingers crossed for a great Derby. And again, thank you for all your support of our company, it gives us confidence and optimism in our future. Thank you.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.