Churchill Downs Incorporated Aktie

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

Thank you, Andrew. Good morning, and welcome to our third quarter 2026 earnings conference call. After the company's prepared remarks, we will open the call for your questions.

The company's 2026 third 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, Sam. Good morning, everyone. Joining me today are Bill Mudd, our President and Chief Operating Officer; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. I will begin with the highlights of our third quarter performance. I will then provide an update on the status of the sale of our regional gaming properties and share some additional insights into our strategic plans going forward. Marcia will follow with more detail on our financial results and capital management strategy, and then we will take your questions.

First, regarding our third quarter results. We delivered record net revenue of $696 million and record adjusted EBITDA of $264 million. We also delivered record adjusted EBITDA for our Wagering Services and Solutions segment and our Gaming segment.

Turning to the sale of our regional gaming assets. As I discussed on our earnings call last quarter, we have been working with Macquarie Capital to sell 9 of our wholly owned regional gaming properties. The process is going very well. We expect to announce executed transactions for the properties by year-end.

While the broader M&A environment may be feeling the effects of increased interest rates and consumer uncertainty, our regional gaming assets have attractive characteristics that distinguish them. They are generally newer and better maintained than comparable properties and generate strong cash flow with high free cash flow conversion. We intend to use the sales proceeds to significantly reduce leverage, to repurchase shares and to selectively invest in Churchill Downs Racetrack and other high-return growth opportunities.

On Tuesday of this week, our Board of Directors authorized a new $750 million share repurchase program, reflecting our confidence in the execution of the asset sales process.

As we look ahead, our company's strategy is focused on our 3 highly valuable platforms: Churchill Downs Racetrack and the Kentucky Derby, our HRM businesses and our TwinSpires business. Each combines strong cash generation, durable competitive advantages and attractive opportunities for profitable growth. These 3 cornerstones form the foundation of a more focused portfolio designed to compound shareholder value over the long term.

Churchill Downs Racetrack and the Kentucky Derby, increasingly all of Derby Week, is the crown jewel of our portfolio. It is a unique global sporting and entertainment event combining tradition, community, competition and celebration in a way few events can replicate. Our opportunity is to expand the relevance, reach and earnings power of Derby Week while preserving the traditions that make it so special. We plan to accomplish this by making smart capital investments, continuing to enhance the guest experience, elevating the quality of racing, introducing innovative wagering opportunities, expanding social media and television viewership and growing our sponsorship platform. Derby Week is positioned to be a meaningful driver of adjusted EBITDA growth in the near term and for years to come.

Regarding the 153rd Derby in early May of next year, demand is very strong. At the end of the third quarter, ticket sales for Derby 153 were well ahead of the comparable pace for Derby 152, demonstrating its enduring appeal and the increasing consumer demand for premier live sports and entertainment experiences.

Construction is underway on Victory Run, which will be located just past the finish line between Skye Terrace and the first turn section of the racetrack. We are on schedule and on budget to complete this project in time for Derby 2028. Compared to Derby 2026, we will have an interim upgraded seating experience in this area for Derby 2027 with covered stadium seating and enhanced amenities to ensure our guests enjoy a premium experience. When completed for Derby 2028, Victory Run will introduce a spectacular spectrum of private suites, indoor and outdoor dining and covered box seats.

Regarding sponsorship growth, we were pleased to announce a multiyear partnership with Visa as the preferred payment partner of Churchill Downs in the Kentucky Derby. In addition to the sponsorship and hospitality relationship, Visa will also create opportunities for their clients and cardholders to access exclusive Derby Week offers and experiences while making their purchases simple, secure and seamless. Visa joins a dynamic lineup of signature partners for the Kentucky Derby, including Woodford Reserve, Longines, Ford and SAP.

Sponsors are increasingly recognizing the desirable demographics of our guests, the value of our television viewership and digital audiences and our extensive social media engagement. The heightened visibility is attracting interest for many of the most well-respected brands, and we remain focused on broadening and strengthening our sponsorship portfolio in the years ahead.

The 2027 Kentucky Derby will be the kickoff for the Thoroughbred Championship Series. The TCS will consist of 2 divisions: the Derby Division for the colts and the Oaks Division for the fillies. The Derby Division will be a 6-race series that begins with the Kentucky Derby, includes the Belmont Stakes, a race at Churchill Downs over the 4th of July weekend, 2 races at Saratoga Race Course over late July and late August and finally ends with the Championship at Churchill Downs Racetrack at the end of September.

In partnership with the New York Racing Association, the owner of Belmont Park and Saratoga Race Course, the Derby Division will connect 3 of the world's most iconic racetracks into a season-long competition over 5 months to determine the best 3-year-old colt. In addition to national television broadcast, the series offers an incremental $5 million in prize money beyond the purses offered for each race, creating a compelling economic incentive for the best horses to compete throughout the championship series.

Turning to the Oaks Division for the fillies. We will have 4 races beginning with the Kentucky Oaks on the Friday before the Kentucky Derby. As you will recall, the Kentucky Oaks was broadcast on NBC in prime time for the first time earlier this year to rave reviews and strong ratings, illustrating there is a national audience for Oaks Day and the competition of the world's best 3-year-old fillies.

The second race will be at Belmont Park on July 5, the day before the Belmont Stakes. And then the final 2 races will be at Saratoga in June and August. The 3 highest ranked horses in the Oaks Division will split a $1 million prize pool in addition to the purse money that they otherwise win for each race. Then there is a twist. The winner of the Oaks Division will be invited to participate in the TCS Championship race of the Derby Division in September to compete against the boys for an opportunity to win up to an additional $1 million bonus.

We believe the winner of the Oaks Division going against the best of the boys will drive heightened excitement and national interest. The best filly deserves the chance to take on the colts in what will be an electrifying challenge that is unique in sports.

Today, horse racing captures significant attention around individual marquee events, particularly the Kentucky Derby. The TCS is designed to connect these moments into a continuous story that unfolds throughout a season. Sports fans naturally follow championships, rivalries, leaderboard standings and athletes over time, and we believe the TCS format will create that same opportunity for horse racing, giving fans more reasons to stay engaged. By encouraging the best horses to compete against each other, we believe both dedicated enthusiasts and casual fans will develop stronger emotional connections with the stars of the sport while increasing visibility and demand for the highest level of thoroughbred racing.

A season-long championship series leverages the economic flywheel we have established with the Kentucky Derby to create long-term economic value from expanded media rights, new hospitality experiences, sponsorship activation, licensing opportunities and new wagering possibilities across the series. The TCS is a strategic and capital-efficient platform to modernize how fans engage with horse racing. We believe it has the potential to become an important catalyst for expanding horse racing's audience, both domestically and internationally, while further enhancing the value of Churchill Downs Racetrack and the Kentucky Derby. While we do not have any current plans to do so, we will consider adding new venues, races and even new series over time.

Turning to our HRMs, which are the second cornerstone of our strategy. We see long-term growth through introducing more leading gaming content and new products, including electronic table games, along with selective expansion. We are pleased with our HRM performance across all of our properties in Kentucky and are encouraged with the continued long-term growth potential for these venues.

We are also happy with the performance of our roulette electronic table games in Kentucky. These ETGs are attracting new customers and supporting the reactivation of inactive HRM customers. We are planning to roll out craps ETGs around the end of the year. We are also working to finalize the development of blackjack ETGs in 2027. Ultimately, the greatest contribution to our venues will be realized when we have a suite of ETG offerings. Thus, we are very focused on getting craps and blackjack developed and deployed first in Kentucky, but then also we hope in Virginia.

Speaking of Virginia, the Rose in Northern Virginia continues to grow nicely as it further develops the market. It delivered strong growth in rated and unrated play both quarter-over-quarter as well as sequentially. This also reflects the relative strength of the consumer in this market. We believe the Rose has significant long-term potential for further growth, and we remain very encouraged.

In Central Virginia, our venues faced competitive pressure from the new casino in Petersburg, which opened this past January. Importantly, we are seeing evidence that Petersburg is expanding the overall market rather than simply redistributing existing gaming revenue. As the market matures, we believe that the larger addressable market creates opportunities to both attract new customers and rebuild visitation with respect to customers who are now going to Petersburg. We will continue to adjust our marketing programs and enhance guest services to position our Central Virginia properties to compete effectively in this evolving market.

We received this week final county approval to relocate and expand our Collinsville HRM venue to a new location in Henry County. The new site will be closer to the North Carolina border, approximately 45 to 60 minutes from Winston-Salem and Greensboro. We expect to finalize an agreement in the coming days to acquire the land for a new 150-unit HRM venue. We believe this will be a successful investment that exceeds our return targets with real upside potential given the opportunity to capture a portion of the North Carolina market.

We will know next week the results of our 2 referendums in the town of Pulaski and in Amherst County, both in the western part of Virginia. If these referendums pass, we will have the opportunity to further expand our HRM footprint in these underserved markets with a total of 2 facilities, each with 150 machines.

The HRM regulatory structure in Virginia is unique. We have the right to deploy 5,000 HRMs across 10 sites and can move both the sites and machines around the state, subject to certain limitations, to optimize the overall performance. We currently have approximately 4,700 HRMs deployed across the Commonwealth, and these 3 expansion opportunities would represent an incremental 415 HRMs. We have the flexibility to reallocate HRMs from other areas, including from Central Virginia, to optimize the value created by our right to have 5,000 HRMs.

In New Hampshire, Rockingham Grand Casino is on track to open on time and on budget in mid-2027 at the Mall at Rockingham Park in Salem, New Hampshire, right at the Massachusetts border. We are creating an exciting entertainment venue to serve this very attractive market that we expect will provide significant growth for us in the coming years. We are really excited about this project and very encouraged by the development of the market over the last year as other venues have opened.

Regarding TwinSpires, our third cornerstone. TwinSpires is the largest online wagering platform for horse racing and a strategically important distribution platform for our broader integrated racing offering. We continue to expand its reach and engagement through product innovation and broader direct-to-consumer and business-to-business distribution. We continue to see wagering growth, EBITDA growth and opportunities to expand distribution with our B2B partners.

We have introduced new products such as Jackpot 8, where a bettor can win a significant payout for picking the first 8 finishers of a race in exact order. Easy Bets is another new wagering product where a bettor can wager on either all the odd numbered horses or even numbered horses in a race. TwinSpires has also successfully launched several enhancements, leveraging AI such as Paddock Pro AI and AI Race Preview to expand bettor engagement, especially among our VIP customers. TwinSpires will continue to invest and innovate to build on its clear leadership position in horse racing.

In summary, we are committed to growing the Kentucky Derby and Churchill Downs Racetrack through thoughtful, disciplined execution. We are also focused on growing our HRM and TwinSpires businesses while continuing to refine our portfolio around unique, high-performing assets that provide multiple catalysts for growth and free cash flow generation. At the same time, we remain committed to exiting the regional gaming business. The combination of the sales proceeds from our regional gaming process and the strong cash flow generated from our ongoing businesses will enable us to pay down debt, repurchase shares and selectively invest in our businesses.

Our strategic decisions, disciplined capital allocation and strong balance sheet positions us to drive sustainable long-term growth in adjusted EBITDA and free cash flow.

And finally, we are pleased to welcome Michael Tucker to the Board of Directors. Mike has over 30 years' experience successfully investing in sports, entertainment and leisure companies. Mike's deep investment experience, strong financial acumen and extensive knowledge of market dynamics and strategic capital allocation will be invaluable as we continue to evolve and grow.

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 review the key drivers of our third quarter financial performance and then discuss capital management.

Starting with our third quarter financial results. As Bill noted, we delivered record third quarter revenue and adjusted EBITDA. Regarding our Live and Historical Racing segment, our Kentucky HRM properties delivered record revenue with adjusted EBITDA increasing 10% year-over-year. Our Southwestern and Northern Kentucky HRM venues contributed double-digit growth in adjusted EBITDA compared to the prior-year quarter. Our Louisville HRM venues also had a strong quarter. Growth in Kentucky was driven by strong top-line performance and disciplined cost management. Revenue trends across these markets continue to demonstrate resilient consumer demand.

Turning to Virginia, the year-over-year comparison includes a one-time business interruption insurance recovery in the third quarter of last year related to our Northern Virginia property. Excluding this one-time item, Virginia adjusted EBITDA decreased by $6 million compared to the prior-year quarter. As Bill discussed, our Central Virginia HRM venues were impacted by competition from the temporary casino in Petersburg. Central Virginia was also impacted by approximately $5 million of expense related to a new tax on live racing days that was effective July 1 of this year.

Our Northern and Western Virginia HRM venues continue to deliver solid growth. Since opening, the Rose in Northern Virginia has delivered sequential quarterly growth in GGR per machine per day, supported by expanding guest awareness, effective marketing and higher spend per visit. These trends reinforce our confidence in the continued development and opportunity for meaningful growth in this market.

Turning to our Gaming segment, adjusted EBITDA increased 4% compared to the prior-year quarter. Our wholly owned regional gaming properties continue to deliver strong performance with nearly all properties growing as compared to the third quarter of last year. Overall, third quarter same-store margins at our wholly owned casinos were consistent with the prior-year quarter.

Finally, a few comments on overall consumer trends. We saw notable improvement compared to the prior-year quarter as well as sequentially. Higher-value rated play contributed to growth, while our lower-value unrated segments remained resilient and generally consistent with the prior quarter trends.

Turning to capital management, our strong operating performance continues to translate into significant free cash flow. Through the first 9 months of the year, we generated free cash flow of $603 million or $8.59 per share. This strong free cash flow generation provides us with significant flexibility to pay down debt while investing in high-return growth opportunities and returning capital to our shareholders.

We spent $57 million on maintenance capital through the first 9 months of the year. We now expect full year spend of $90 million to $100 million on maintenance capital in 2026. We spent $119 million in project capital through the first 9 months of the year. We now expect full year spend of $160 million to $180 million on project capital in 2026. We expect to spend between $200 million and $250 million on project capital in 2027.

We repurchased more than $48 million of our shares during the third quarter and an additional $76 million from October 1 through October 27 of this month. This week, our Board authorized a new $750 million share repurchase program. The new authorization reflects our confidence in the execution of the regional gaming asset sales, our strong cash flow outlook and the long-term value of our company.

We also recently announced our Board of Directors approved a 7% increase in our dividend, which will be paid out on January 5, 2027. This will be the 16th consecutive year of increased dividends per share for our company.

We ended the quarter with bank leverage of 3.8x, supported by strong operating cash flow. Based on our current capital plans, we expect bank leverage to remain around 3.8x to 3.9x through year-end and decline below 3.0x following completion of the regional gaming asset sales.

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

Thanks, Marcia. Okay, everybody, we're ready to take your questions.

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

I wanted to ask about TCS. Can you maybe just help frame the expected economic drivers and business mix? I guess, what's a reasonable time line to ramp? And ultimately, how big do you think this can get?

Sure. Thanks, Barry. Appreciate the question. So I couldn't be more excited about TCS. It's something that hasn't existed in horse racing, which has historically been built around specific marquee events that haven't really been successfully linked together, at least not sufficiently in recent times. So the idea was to take some days that already existed around which there was at least a lot of internal, within the industry, excitement and also add some new days, particularly at Churchill Downs around the 4th of July and then in the September championship to create entirely new big days.

So how we think about this from a business perspective and from a monetization perspective, you just go back to the Derby flywheel that we talk about. I think you'll see wagering right away. I think you'll see significant wagering contributions quickly and right away. These are going to be great races with well-known horses.

And what the fans, both casual and serious, hardcore fans like is the very best racing against each other. So forcing or encouraging these horses to a back-to-back race against each other is going to be great for wagering. And we think also we'll immediately start that portion of a flywheel around admissions revenue, ticketing. That's a big part of it.

And then as we demonstrate that success, we'll be able to accelerate sponsorship and certainly licensing. So media rights, we're working on that. That will be a work in progress as we figure it out. I'm excited to kick this off, and I think it will be big from the very beginning.

But remember, we're just starting this. So we've got to ramp it up and we've got to prove it, and we've got to answer 1,000 little questions as we deliver a new product to the consumer. Everything focused on reaching beyond that hardcore industry fan, to get to those casual fans that we know are out there because they all show up to watch the Derby, last year, 24 million of them.

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

So just maybe following on that, maybe more of a near-term Derby question. Obviously, the earlier part of the Derby Week is one of the longer-term tailwinds. What can we kind of expect for next year? What's sort of on tap programming-wise, either which day or which events that you can kind of point out for how we can think about incremental growth in 2027?

Yes. Brandt, thanks for that question. So we saw great success in 2026 with the Derby. Media, fan engagement through the roof. So we're building on something that puts us in a great position. As I mentioned in my earnings comments, where we are now, 2027 Derby versus 2026, we're ahead on all the key metrics. And so nothing is more encouraging than that.

As we look towards building the customer proposition for 2027, you're going to see us focus as we did in '26, but even more so on Derby Week. We think we found the formula for each day where each day is unique, each day is special and each day can have a program built around it. So whether it's Oaks, like you saw last year, it was on NBC for the first time. They were very pleased with the ratings. We were very excited about the ratings. Again, next year, it's back towards that's a national televised event. So you've got Derby on Saturday, Oaks on Friday, Thurby, Winsday, 502'sDay, Opening Day. Every day, there is a significant theme around which we rally consumer participation and build. You won't see us change that formula for 2027. You'll see us go harder and invest more in building those out.

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

I wanted to just go back to the issue of sponsorship. And the complexity of the question that I think we're all grappling with is the opportunities to expand sponsorship around the Derby, which we've seen from your announcement on Visa, which is a positive step, but also that being wrapped into and/or combined with TCS. Anything you can do to help us think about that sponsorship opportunity would be really helpful.

David, I appreciate that question. Yes, we were really excited about the Visa deal. That was a nice win for our team and a nice win for our partner at Visa. So as we look forward now, a big key for us as we push to the next level of sponsorships is really focusing on the TCS. The fact is we need more content. Our sponsors, our fans, our viewers, they all like what we have with Derby and Derby Week. So for us, it's pushing beyond that to develop more content, to develop more events around which we can build everything -- every element of our flywheel, including sponsorships.

So I think you'll see us focus not just in 2027 but beyond on how we can incorporate what we're doing with the TCS to give our sponsorship -- our sponsors more assets and more properties around which they can drive value. So we'll be working not only with our own current sponsors and with our folks at Churchill Downs Racetrack, but with our partners at the New York Racing Association, who own Belmont Park outside of Manhattan and then Saratoga, to see what we can what we can do to drive our pipeline, which is already really strong, what we can do to really further monetize that and expand that as we go from a week of greatness with the Derby to 5 months of assets and properties around which we can build.

And our next question comes from the line of Daniel Politzer with JPMorgan.

I wanted to talk about Virginia a little bit. I think you're adding a little bit of new supply there or relocating it. And then I think you have 2 HRM locations on the referendum in the next couple of weeks. So I mean, can you just talk about how you think about supply and demand in this market and maybe how we should be thinking about underwriting organic EBITDA growth going forward?

Sure, Dan. Happy to address that. First, I'll start with Northern Virginia and the Rose. That's a 6.5 million-person market. There are 275,000 people who are driving by our facility every day on I-95. So I was really, really pleased with the trajectory of that property over -- really since it's opened, but particularly over the last couple of quarters. We're growing every quarter, quarter-over-quarter and also sequentially. So more of the same there. We still have a long way to go to tap that market fully to develop that market. It's an unmature or immature market that has a lot of opportunity, a lot of upside. So I like what we're doing in Northern Virginia.

When you start thinking about other regions of Virginia, you get to appreciate what a puzzle Virginia is. We have this unique right with our 10 licenses in the jurisdiction and our 5,000 machines to move machines and licenses around based on what we see in the marketplace. So in Central Virginia, I like that market, but we have new competition there. Still love our facilities, still love their win per day, still love their EBITDA contributions, but there is competition in that market. Some of that will drive an expansion and growth of that market, but we also have to deal with the competition in the market.

So that's an example of let's rightsize those properties in that market, let's not overreact to new competition. Let's just rightsize our marketing programs, our number of machines, our business proposition in those markets. And then let's look at the state as a whole to decide where else we can put machines. We always have our expectations of what they'll do when we put them there. But then we can see how they do. And if they're better than we think, great. Maybe we invest more, maybe we introduce more supply. If they're not quite what we think, well, then we move supply around to different parts of the state.

So I would just encourage all of you to look at Virginia as a state the same way we do, which is we have the ability to surge supply based on what we see from a demand perspective in different regions of the state. You'll see that over the very near term, and you'll see that over the long term. That's a unique and truly special option we have with how the regulatory and legal infrastructure for gaming for us is designed in the state.

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

Bill, I know these things are hard to talk about a little bit, but just wondering -- and I'm sorry if I missed it, but can we get a small update on the -- just asset sales process and where you sit? And maybe just helping level set expectations around either types of buyers or types of interest you're receiving. And I think more importantly, timing on should we expect multiple things at different periods or maybe something a little bit more lump sum?

Sure, Shaun. How the asset sale is going, they're going great. We're pleased with the process. We're planning on executing transactions at year-end. Very pleased and very confident about the process and where we are in the process and how the next several weeks are going to go.

So as to the nature of each transaction, I think you might have been referring to is it one big transaction or a series of smaller transactions. It's a series of smaller transactions. These properties has been marketed individually. So it can be the case that there might be some that go to the same buyer, and it can be the case that they all go individually. That remains to be seen. But the short answer is full speed ahead. We feel very good about where we are. We expect to execute transactions by the end of the year, and the process has been what we hoped and expected it would be.

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

Bill, at the gaming show earlier this month, G2E, there was a lot of buzz around just additional content for HRMs from a lot of the equipment suppliers that seem to be a bigger focus than in years past. So can you talk a little bit more about what this could mean for driving win per days? And then you kind of touched on the ETG segment, kind of where that is and where that total addressable market could be within your portfolio?

Thanks, Chad. So yes, I remember when we opened Derby City Gaming in Louisville, we only had a single manufacturer. And so we opened that facility originally with one gaming manufacturer. And if you think about how that compares to Class III facilities you see in Las Vegas or even in all the regional casinos throughout most of the country, you realize what a product disadvantage that is. Nevertheless, Derby City Gaming took off like a rocket, and we've built it ever since.

So the story of HRMs for us has been a story of attracting additional game manufacturers and getting them to do the work with us to convert some of their Class III titles to HRMs. That's an ongoing process. That is a constant ongoing process. The development of games in the country is really oriented around Class III. So that's where they're first being built and developed. And our task is to work with those manufacturers to get them to convert those titles, which can take some work, to convert those titles to HRM titles as well.

So that's an ongoing process that we've been working on, and we're far from done yet. There's still plenty of manufacturers and plenty of titles that we want to add so that we can expand our floors and offer the full range of products that people find in Class III competitors.

And then another key component for us are electronic table games. That's a process that's near and dear to my heart. I think it's an important strategic component of the positioning of these properties, both in Kentucky and in Virginia over the long term. So our team, we've really worked hard to encourage our team and to encourage potential suppliers to help develop those products. We've been successful in roulette. We've been very, very pleased with roulette's performance in Kentucky.

But the true value of electronic table games for our HRM venues really is going to be a story of a suite of products, not just a single product, not just a single game like roulette, but a suite of games. So that's why we've been focused on craps. We're very encouraged and excited about craps because we've seen it. We think that will be a big win for us in our facilities, but we also need blackjack, and we're working very hard on that.

So in our journey, we're still very much on the early end with electronic table games, but this is where you do the real work. This is where you have to really commit and invest to develop the products. And it's not only a math and a product exercise, it's also a regulatory exercise. So we're hard at work at that. And I think as I talked about a bit in my comments, you'll see craps end of the year. We're also working hard at blackjack. I'm more excited when we have 3 products instead of 1 and then build from there. I'm more excited, the more range of ETGs we can offer our customers. That's when there'll be more of a 1 plus 1 equals 3, not 1 plus 1 equals 2.

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

Bill, in the past, you've helped us with milestones and targets for some properties similar to when you opened the Rose. So for Rockingham next year, are there similar milestones, whether win per day or margins, we should be thinking about for that ramp?

And then if I can just sneak in a quick follow-up here. They seem meaningful. Bill, you did say meaningful EBITDA growth in the near term for the Derby. Is there a way to kind of put parameters or expectations around those comments?

Sure, Jordan. Let me unpack that. Rockingham Park, the Rockingham Grand, that you'll see open mid next year. So we're in the process of building out that facility. It will have around 800 to 850 HRMs and slots. It will have 32 table games. It's located right at the border of New Hampshire and Massachusetts. It's got a -- it's a conversion of a structure at the Mall there, which is a very successful mall. It has its own overpass for ingress and egress. So it will also have a large event center.

So that market, I would encourage all of you to look at the performance of some of the competitors that have opened in that market over the last couple of years to see their ramp in that New Hampshire-Massachusetts border area on the New Hampshire side. You'll see there's a lot to be really, really encouraged about. So as we build our expectations, I have to say that they've become heightened because the performance of some of the other product in the market has done better even than we originally expected it would do.

So we like our site the best. We think we got the site we most wanted when we looked at that market a handful of years ago before it was developed. We like our site the best, and we're very encouraged, and we'll be building our expectations based on the significant performance we're seeing in that region from other sites.

With respect to the Derby, as I mentioned in my earnings comments, hey, we're seeing stronger numbers at this point than we saw last year for the 2026 Derby. So we're building on that. Everything is moving in the right direction, sponsorships, admissions, all the elements of our -- of the flywheel, which is how we really think about what we're doing there.

So the big move the needle in a really significant way will be when we open up Victory Run. In 2027, we'll be in the process of constructing it. We feel very, very positive about what we're doing. It's a better product even on a temporary basis in that section than we had in 2026. So we'll have covered seats there and upgraded amenities. So we feel really good about where that section of the track is. Even though it's under construction, we feel very good about the product offering we'll have there for 2027. But really, the goal is to get that section to 2028, where we'll open what we call Victory Run, which is an integrated very high-end suite of products, including boxes, indoor/outdoor dining and then large private suites.

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

Just in an attempt to try to squeeze a few numbers out of you guys, as we think about just the overall CDRT business, especially with all these exciting new additions, and we look out maybe a few years, any thought of, one, in a post-gaming world, the percent of the business that CDRT could represent?

And two, just in terms of kind of a margin profile, you don't explicitly break it out, but I think it's pretty clear that Derby is a very high-margin business. Will these incremental races also represent really high-margin flow-through? And just any sense on those would be great.

Trey, thanks for the question. So first, Churchill Downs Racetrack and the Kentucky Derby is the crown jewel of our company. It's the single most unique, most special asset in our company. And I put it up against any other asset in the United States or the world in terms of its uniqueness and potential. It's a fabulous asset. It's a culturally significant traditional extravaganza. And our job is to grow it and make it a great business, which I think our team has done a really good job of doing.

So going forward, we need to continue on the on the themes that we're on. We'll get Victory Run done, but there are other projects. There are other things, small projects, larger projects, there are other things to drive growth. The general interest in the asset or in the event is just growing on its own. People just want -- the word of mouth, people just want to be there. They want to be in the sections that we've built, the newer sections. They want to be at the paddock. So our goal and our expectation is we're going to continue to compound growth with the processes that we're following now. So it's going to be more of the same, but bigger and better.

So the other thing you referenced in your question is, yes, it's very high margins. And certainly, as we sell regional gaming assets, the percentage of our company that's the Kentucky Derby and Churchill Downs Racetrack grows as a percentage. And certainly, that's true. And from a margin perspective, we're -- we have a good thing going. We know why it works. I think very high margins are a component of the business model and one we'll continue to emphasize and improve on.

And I think the TCS, Thoroughbred Championship Series, that's a part of that. We've made these investments in this asset called Churchill Downs Racetrack, and we want more opportunities to show that asset off, to show that property off, to utilize that property. And so part of the secret sauce, I think, that we're developing for and that we're using that we've learned from the Derby is how do we use that asset? How do we use our site for other big events, other big things? And that's part of the heart behind of what we're doing with the Thoroughbred Championship Series.

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

I wanted to ask on a point you made earlier in the prepared remarks, Bill, which is that ticket sales for by Derby 153 are pacing, I think you said specifically, well ahead of this time last year. Can you just remind us how much of your premium ticket capacity is typically sold by this point in the selling cycle? And I'm curious if there are any notable call-outs that you're seeing worth mentioning just in terms of specific sections that might be selling out more quickly or where you've seen better pricing than maybe you expected?

Yes. That's a really interesting question. I'm going to answer it and then dig down into it to explain the answer. So around now about 25% (sic) [ 40% ] of our premium ticket inventory is sold, even more than that, I'd say. But the important thing is the process and the timing for which we move different ticketing is sort of a trade secret. We're not trying to move it all upfront. We're trying to yield -- we're trying to yield our seating. And so we follow a plan and a process that we found over time that does that for us.

So many sections, they are tied up on multiyear PSLs that's stronger than it's ever been. But when it comes to the unallocated tickets, the hold and open for the public for next year that we look to sell and don't hold under long-term contracts, that part -- all parts are way ahead of where they were last year. But that part, we're just throttling back because we want to make sure we keep sufficient inventory for later in the season because the demand so far has been so strong.

And our next question comes from the line of Peter Supino with Wolfe Research.

I wanted to see if you could shed any more light on the margin structure of the Racing segment and how you think about incremental returns on capital in that business?

Peter, you broke up on me for one second. Would you mind repeating that question? I'm sorry, it was on my end, not yours. We were shuffling papers and you broke up for a second. Would you repeat that?

Yes. I just wondered if you'd talk at all about the margin structure, the profitability of the Kentucky Derby business and the incremental returns on capital that you expect to receive, to earn on investments in that segment.

Sure. So generally, because we've seen such ability to drive pricing power over time, when we do a project at Churchill Downs Racetrack, we're willing to accept a little longer payback time frame than on other assets we develop in the company, say, a gaming property. So generally, we've been willing to be a little more patient on the payback period than other investments we make in the company.

But the fact is, in most times, and this is a great thing to say as a business executive and having worked across a series of different investments within the company, it's a great place to be. Generally, what we do around Churchill Downs and the Derby outperforms our expectations, and that's been true over virtually every year that I've been around here.

So generally, we try to be a little more patient because you're introducing -- when you do these projects, you're often introducing very unique things and a very unique sale proposition to the customer, and you have to be patient for the customer to understand what that sales proposition is and for word of mouth to develop and to build a book of demand around each new section as you develop. But generally, it's gone better than we could hope, that generally, it has outperformed.

So expectations, I'd say this, as we've developed new sections on the CapEx front, they're not changing. They're not getting longer. They've been consistent over time. So the beauty of our business model, the admissions-based model, people pay for an experience. They pay for all of the events that they experience, not just this thing called a seat that they purchased, they paid for this general experience.

And that's why projects like the Paddock, that's why we can drive such margins because everything we do sort of drives the overall experience. It's not just the seat they pay for. And when we think about what we do at the track, we think about how the consumer's experience is affected not just by a new seat or a new section, but their entire experience within the facility.

And I think that's an important driver for Victory Run because that's an area of our facility that has historically been underinvested in, and yet it's an area that people often pass through. Not everybody, but many people at the facility will spend some portion of their day passing through that. So that acceleration, I think, of that area being turned into something beautiful and consistent with the highest-end areas of our track with the paddock area, I think that will that will fuel all levels of the -- all elements of the flywheel.

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

As a follow-up to that last question, can you just dig in a little bit more about how you kind of measure success there on the racing lean-ins with the series and the partnership. You mentioned wagering, admissions, partnerships, but is there anything more qualitative as the strategy takes form? And then you kind of hinted at it, but is there a specific time horizon that you are focused on for these kind of -- both investments, but also kind of strategy shifts that you're looking at?

Yes. Yes, that's a fun question for me to talk about, and it's not one we often get to in these calls. But that qualitative element actually takes a lot of discipline because you don't always monetize social media impressions. You don't always directly monetize within a television contract increase in ratings. But you still have to work very hard to drive those things because those are some of the most impressive statistics about what we have with the Kentucky Derby.

If you look at our television numbers, which have been just growing sequentially every year, 24 million people at the peak watched the Kentucky Derby last year. I think we averaged, which is another metric, something like 19 million or 20 million. Those are extraordinary numbers, and you put those up against the World Series, you put those up against the NBA, you put those up against the Masters, football, college pro, those are really, really incredible numbers, and that takes work to build a television experience with our NBC partners that is good every year to build and deliver those kind of ratings.

So we spent a lot of time thinking about the storytelling around our event. We spend a lot of time on social media. And those are also numbers that we put up against anybody. Our increasing social media impressions, all of those metrics, we track very, very closely, and they all are driving forward at a really great rate. And those eventually feed into the other metrics of wagering or sponsorship or higher television deals, et cetera, but you have to do the work on those every single year because you have to show a pattern. You have to show constant progress on that.

So the -- like I said, it's almost fun for me to talk about it because that's work that we do, and we spend a lot of time measuring that we think you have to do to make a great event, but it doesn't necessarily show up that year in some new financial metric, but it's part of the long-term secret sauce and story that you have to put together to drive all of these elements of the flywheel of how we monetize the Kentucky Derby, the wagering, the admissions, the television contracts, the sponsorships, the licensing.

And again, what I'm most excited about -- I'm always excited about continuing that for the Derby, but what I'm most excited about is we want to take all that and put it into the Thoroughbred Championship Series. We want these more events. We want a longer period of time, 5 months of content instead of 1 week of content. We want that longer period of time to use these skills to build that TCS series into something that can be comparable to the Derby over time.

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

Bill, on the Thoroughbred Championship Series, I was wondering if you can, say, discuss the buy-in, right, for the owners and the trainers. We all saw a very prominent owner in the context of buying your stock. Obviously, that's a favorable reference point. But where is that process?

And then two, of the 6 races, we're all familiar with kind of the Derby and Belmont and Travers. But the smaller ones, and one of them is obviously new, but the smaller ones, Matt Winn and Jim Dandy, can you just reference how much betting handle those do at current -- at least historically?

Absolutely, Joe. I have to unpack that question. There was a lot there -- there are a couple of things going on there. So let me make sure I capture all the elements of that. So first, what's been the support and the buy-in from owners and trainers into the Thoroughbred Championship Series. I think it's been exceptional. I think it's very high. I think the industry wants leadership. I think they want a league. I think they want something to shoot for and to build towards.

So I think they're very excited to have more opportunity and for there to be a heightened significance on these races. So that's been really encouraging. And I wouldn't shy away from the fact that we're also doing some economic incenting. You mentioned the Jim Dandy and the Matt Winn, we're taking the purses of those races up, so there'll be at least $1 million. So every one of these races on the colts division side will be at least $1 million. And on top of that, we have the $5 million bonus structure based on how you perform across that series.

So that's a big number in our industry. $5 million to shoot for as extra prize money on top of the -- or as part of the $22 million overall that resides in the purse structure of both series. That's a big deal. There's a big economic incentive.

And of course, we want -- what you can find in horse racing sometimes is the big horses duck each other. There's enough there's enough opportunity out there that these horses sometimes don't want to keep racing. Here, the prestige and the money, the purse money, the attention, the telecast, it's all going to be focused on these races. And all of that's going to drive these horse owners to take their horses and enter them into these races to compete for this.

There's -- they all show up for the Derby. Why do they do that? It's the prestige of the Derby. That's what matters. That's what people outside of the industry talk about. Well, this is designed to pull that prestige, to amplify that prestige so that these owners feel that about these other races and take the risk and go after the reward of continuing to compete against each other to see who's truly the best over a 5-month series.

Another component of your question was some of these races are big deals and some of them are not as familiar to the public. They're all big races. Within the industry, these are all very well-regarded, important high-purse races. But certainly, within that, you have the Derby that's the biggest of them all, both from a purse structure and from a prestige structure. Then you have the Belmont Stakes, which is a legendary and historically important race. It continues to be an incredibly prestigious and important race.

The Travers also is very prestigious. They often call it the mid-summer Derby. But that isn't as known outside of the core industry, and that continues for the Matt Winn and the Jim Dandy. They are big wagering races. Those are big wagering days. Part of the flywheel is already there, but we need to bring some of that prestige that comes from the other races and comes from the whole concept of the Thoroughbred Championship Series. We need to bring that and infuse those races with that prestige and those purse dollars to elevate them and to connect -- by connecting them into one common thing, one common purpose and ultimate higher purpose, we'll grow all of them and we'll make all of them even more significant.

And I'm showing no further questions. So with that, I'll hand the call back over to CEO, Bill Carstanjen, for any closing remarks.

Thanks, Andrew. First, everyone, thank you for joining. Thank you for showing interest in our company. I guess I'd highlight as I think about the last hour we spent together, let me hit on a couple of important things to leave you with.

We're on track to execute on our asset sales. We're pleased with the process. We're pleased with the valuation. We're on course there. We're really excited about the future growth of what we're -- of the Kentucky Derby and what we're doing around the Thoroughbred Championship Series and around Derby Week. That's something I'm looking forward to talking more to you about next time we meet, but we're excited and pleased with how that's going. And we're going to focus on continuing to grow our HRM venues in Kentucky and Virginia, and we look forward to our expansion in New Hampshire.

And one other last thing I'd say is we were fielding questions fast and furious, and I was making sure I gave all the accurate information. I may have garbled one number. We're up about 25% so far in ticket sales compared to last year with respect to the Derby. And we've sold about 40% of the ticket inventory that we've allocated for sale, that we have for the event as a whole. We've sold about 40% of that at this point in the process. So just clarifying those numbers because I might have reversed them as I was rifling through the series of questions.

So again, thanks very much, everybody. We look forward to talking to you next time, and we hope to have more news when we do so. Thank you.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Good afternoon, everyone, and welcome to today's news conference announcing the Thoroughbred Championship Series from Churchill Downs Inc. and The New York Racing Association. Thank you for joining us. Today's news conference is being recorded. Joining us today are Mr. Bill Carstanjen, Chief Executive Officer of Churchill Downs, Inc.; and Mr. David O'Rourke, President and Chief Executive Officer of The New York Racing Association. Bill and David will each provide opening remarks followed by a moderated question-and-answer session. [Operator Instructions] I would now like to introduce Sam Ullrich, Churchill Downs Vice President of Investor Relations.

Thank you, Abby. Good afternoon, and welcome to our joint conference call. A copy of this announcement is available at the section of Churchill Downs website titled News, located at churchilldownsincorporated.com as well as in the website's Investors section. Some of the statements made today may include forward-looking statements.

All forward-looking statements should be considered in conjunction with the cautionary statements in our press releases 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. And now I'll turn the call over to Churchill Downs Chief Executive Officer, Mr. Bill Carstanjen.

Good afternoon, everyone, and thank you for joining us. I'm so pleased to be here today with David O'Rourke and our partners at The New York Racing Association to announce what we believe is one of the most significant developments in Thoroughbred Racing in decades. At its core, the Thoroughbred Championship Series is about the future of our sport. Thoroughbred Racing has everything people love about sports.

It has extraordinary equine athletes, iconic races, legendary venues and traditions that have captivated fans for generations. Every year, the Kentucky Derby introduces millions of people to a new generation of stars and reminds us why this sport holds such a special place in American culture. But today's fans experience sports differently than they did even a decade ago.

They want stories that unfold over time. They want rivalries, standings and meaningful competition that builds from one event to the next. They want a championship they can follow throughout an entire season, and they want to see a champion crown each year to celebrate.

That's exactly what Churchill Downs and The New York Racing Association have set out to create. Starting in 2027, the Thoroughbred Championship Series, or TCS, will bring together each year the world's most spectacular horses and jockeys who compete in the Kentucky Derby, the Belmont Stakes and the Travers Stakes and link these extraordinary athletes and iconic races to form a new 6 race series over 5 months at our sport's most iconic venues. Each of the 6 races matter as we build new traditions and standards of equine excellence, culminating with the crowning of the champion at the finale of the series to be held in September at Churchill Downs Racetrack.

You do not have to win every race or even any particular race to become the champion. The winner will be the horse who demonstrates consistent excellence and stamina in the face of the world's toughest competition across the 6 races. Each year, the champion of the race for the race will have earned a special place in our sports history. This isn't simply about adding another series to the calendar. It's about connecting our greatest events into one compelling season.

It's about giving fans a reason to continue following the sport's biggest stars beyond the Kentucky Derby, and it's about creating meaningful incentives that encourage the nation's leading 3-year-olds to continue competing against one another throughout the summer and into the fall. We believe that's good for our fans. We believe it's good for horsemen. And ultimately, we believe it's good for the long-term future of thoroughbred racing.

None of this would be possible without our partnership with The New York Racing Association. Together, we've built a championship around some of the most prestigious races and historic venues in the sport, and we share a common vision for growing thoroughbred racing by creating a competition that is easier for fans to follow, more compelling to watch and worthy of the extraordinary athletes that compete in it.

We are also very appreciative of our broadcast partners, in our case, NBC, for their support and commitment to helping build this event. Both NBC and Fox have demonstrated consistent and tremendous support for racing, and we look forward to collaborating with all parties to bring more exciting racing content to a national audience. 6 races, 3 iconic racing venues, 1 champion. Great sports create seasons, great seasons create champions. Today, Thoroughbred Racing begins a new chapter.

Thank you for joining us today. We're excited to share more about this vision. And with that, I'll turn it over to David. David?

Thank you all for joining us. It's an honor to be here representing The New York Racing Association alongside our partners at Churchill Downs. This partnership represents a genuine new approach for our sport. Our goal is straightforward: to build a true season-long competition that carries the energy of the spring classics through the summer and into the fall and in doing so, capture the attention of both lifelong fans and entirely new audiences. The Thoroughbred Championship Series will showcase the sports defining races at its most iconic venues to a national audience across both Fox and NBC.

This format is built on standings, a season-long chase that develops real rivalries and brings a playoff atmosphere to racing beginning on the first Saturday in May and continuing into the early fall. It's a structure sports fans instantly understand. And with the reach of our television partners at Fox and NBC, we'll be able to tell the compelling stories and introduce the personalities that have always been at the heart of this sport. The Triple Crown shows this every year how powerful these events capture the public imagination. Our aim is to carry that energy across the full season and give the fans a reason to stay with the sport's best 3-year-olds for May into the fall.

We also believe a stronger, more connected 3-year-old season is good for everyone in the sport, for the horses, for the horsemen and for the fans who follow them. Here in New York, we'll soon begin the new Belmont Park, which opens on September 18, following a 3-year project to create a world-class sports and entertainment destination. Contrast that modern venue with the historic Saratoga Race Course, one of the state's most beloved attractions year after year.

And by linking our tracks with the iconic Twin Spires at Churchill Downs, fans across the country will experience the very best our sport has to offer. That's exactly what we envision for the Thoroughbred Championship Series, a dynamic thrilling races from the sport's finest venues brought to new audiences through compelling national broadcast coverage, matched with an in-person experience to rival any live event anywhere. We're grateful to our partners at Churchill Downs, and we can't wait to get started. Thank you.

We will now begin the question and answer session. [Operator Instructions] And our first question comes from the line of Ed DeRosa with Horse Racing Nation.

Gentlemen, congratulations. I know there's been some consternation in the industry at large and perhaps even at NYRA, David, about the strength of Kentucky. Just partnering with Churchill in this manner and developing almost year-long series, we're working collaboratively at the highest end of the game, alleviate some of those concerns about where sort of Kentucky was placing its stature within the industry.

I would view that differently than that in terms of we think this is leaning into strengths, and what we're trying to do here is set a foundation for season long series and combining our broadcast presences and be able to create a cross narrative. So like I wouldn't term it exactly in terms of the way that you're terming a reaction to.

I think this is building upon 2 organizations that are 2 of the biggest racing organizations in the sport. And collectively, we're creating a new series that kind of modernizes the way that the public can consume our game.

[Operator Instructions] And ladies and gentlemen, that concludes today's news conference. If you have additional questions, please contact the media representatives listed in today's news release. A replay of today's news conference will be available on the Churchill Downs Inc. Investor Relations website. Thank you for joining us today, and have a great afternoon.

Ladies and gentlemen, and welcome to the Churchill Downs Inc. 2026 Second 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. Sam Ullrich, Vice President, Investor Relations.

Thank you, Andrew. Good morning, and welcome to our second quarter 2026 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2026 second quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company's website titled News, located at 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 related announcements 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, Sam. Good morning, everyone. Joining me today are Bill Mudd, our President and Chief Operating Officer; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. I will begin with highlights from our record second quarter performance in Kentucky Derby.

I will then provide an update on our major development projects and our strategic plans. Marcia will follow with more detail on our financial results and capital management strategy, and then we will take your questions. First, regarding our second quarter results. We delivered all-time record net revenue of $980 million and all-time record adjusted EBITDA of $477 million. This marks the sixth consecutive record second quarter for both metrics. At the end of April, we began a week-long celebration leading up to the 152nd running of the Kentucky Derby on Saturday, May 2. We made several enhancements that expanded the reach and value of our iconic event.

We added Sunday Racing on April 26. With this additional day, we welcomed over 386,000 guests for Derby Week. This is the equivalent of nearly 6 Super Bowls or World Cup games over the course of 1 week. We continue to reap the benefits of the capital we have deployed to enhance the Derby experience. We are building long-term demand in each of the areas in which we have invested over the past 5 years, including the starting Gate Courtyard and Pavilion, the First Turn and the Paddock. We completed the renovation of the Mansion and a significant upgrade to the Finish Line suites for this year's Derby Week. Both premium areas offer exceptional views of the Finish Line and the guest feedback has been extremely positive.

Our partnership with NBC delivered record broadcast revenue and viewership. Broadcast revenue increased $10 million under our new NBC agreement. Peak viewership exceeded 24 million, 12% above last year's record. For the first time, NBC aired the Kentucky Oaks race in prime time, reaching an average audience of more than 2.4 million viewers. The Friday night broadcast created a strong lead-in to the Kentucky Derby and expanded awareness, engagement and wagering around our flagship event. Derby Week also generated more than 500 million social media impressions, up 84% from 2025. This year, we once again set all-time records for all sources wagering on Derby Week. The Kentucky Derby race remains by a massive margin, the highest U.S. horse racing wagering event, while the Kentucky Oaks race is the fourth highest.

As expected, sponsorships and licensing for Derby Week also grew in 2026. Together, all of these results demonstrate the continued growth in Derby Week's cultural relevance, reach and value. Turning to our key development projects. Our capital investments in 2026 are primarily focused on the continued development of Churchill Downs Racetrack and our HRM expansion in New Hampshire. Regarding Churchill Downs Racetrack, first, our $285 million Victory Run project will be completed before the 2028 Kentucky Derby. Located on the first turn, this new hospitality offering will add premium suites, covered box seating and multiple high-end dining experiences. For the 2027 Kentucky Derby, we intend to have high-end temporary stadium seating, restrooms and concessions underneath the newly constructed Victory Run roof to materially improve the guest experience until the interiors and other permanent improvements are completed in 2028.

This project remains on time and on budget. Second, we are expanding the interior of the Homestretch Club to add amenities and indoor space for the 2027 Kentucky Derby. Third, we are redeveloping the infield areas on both sides of the winners Pagoda, which is the historic building in the infield near the finish line where the Kentucky Derby winners receive their trophies. As part of this redevelopment, we will be removing the toke boards and using this space to create new customer experiences with exceptional views of the home stretch, the Finish Line and the Derby Winners Trophy presentation. For the 2027 Derby, we will be installing 1,400 temporary seats and we'll also be testing a new Cabana offering for approximately 500 guests along the turf course.

These new offerings will enable our team to further segment the infield experience and provide a broader set of price points. We are also making underground infrastructure improvements in the first turn area of the infield, which will enable us to create a more level area for music stage and new bar and lounge concepts. We will continue to evaluate long-term permanent entertainment experiences for these highly desirable areas of the infield. In New Hampshire, Rockingham Grand Casino in Salem remains on track for a mid-2027 opening. We expect this state-of-the-art gaming and entertainment destination to attract guests from across New England. Now I will provide a brief update on our strategic plans.

Over the last number of years, we have built and acquired unique growth assets, invested organically in the Kentucky Derby and high-return HRM properties and monetized assets when we believed another owner could create additional value. We believe that our recent share price performance has not reflected the quality, durability and cash-generating characteristics of our properties, and we certainly recognize that we must constantly analyze and adapt to our market environment and dynamics. After a great deal of internal strategic analysis and discussion, we commenced a strategic review of our wholly owned regional gaming properties within our Gaming segment. As part of this review, we assessed the strategic importance of each of our wholly owned regional gaming properties to our overall company strategy. As a result, we are exploring various options to sell the following 9 gaming properties: Calder Casino in Florida, Terre Haute Casino in Indiana, Hard Rock Casino in Iowa, Oxford Casino in Maine, Ocean Downs in Maryland, Harlow's and Riverwalk Casinos in Mississippi, del Lago in New York and Presque Isle in Pennsylvania.

We will retain our Fair Grounds related properties in Louisiana because of their long-term importance to the horse racing industry. Fair Grounds Race Course is home to the Louisiana Derby, which is a premier road to the Kentucky Derby race. Fair Grounds also offers one of the very few wintertime turf courses in the eastern half of the United States and plays a key strategic role in the migration of race horses in the colder months. Based on market feedback, we now believe that a sale of these properties will most likely be individually or in small groups to maximize value for our shareholders. We are working hard to execute this process over the coming months. We have engaged Macquarie Capital to assist us. To be clear, we do not intend to sell our HRM properties in Kentucky, Virginia or New Hampshire.

Our intention is to use any asset sale proceeds to significantly reduce our leverage, reinvest selectively in Churchill Downs Racetrack and in other high-return projects and fund the repurchase of shares of our stock. Going forward, we will concentrate on assets with strong cash flow and durable competitive advantages. Three cornerstones will anchor this strategy: the Kentucky Derby, our HRM businesses and our TwinSpires business. Together, these cornerstones support the horse racing ecosystem and provide multiple avenues for profitable growth and long-term shareholder value. The Kentucky Derby is our defining asset and the foundation of our differentiated strategy. As the crown jewel in our portfolio, we are committed to expanding its relevance, reach and earnings power while preserving the traditions that make it singularly unique.

It is a one-of-a-kind luxury live sports and entertainment property that builds on 152 years of tradition, historic Americana, celebration and shared experiences. We intend to build on that legacy. Our goal is to make Derby Week an even broader national and international event. We see meaningful opportunities to grow global attendance, wagering, viewership, sponsorship and EBITDA across the full week. Strategic investments will remain a key part of our long-term strategy for growing the Derby. These projects are designed to elevate the guest experience, expand premium inventory, deepen sponsorship opportunities and generate attractive long-term returns. The second cornerstone of our strategy is HRMs. We will continue to develop and optimize high-quality HRM entertainment venues in Virginia, Kentucky and New Hampshire and to pursue opportunities in additional states that authorize HRMs.

We will use Exacta technology to improve returns at our properties, expand the platform with other U.S. and international operators and continue to develop electronic table games to broaden our product offerings. Our HRM venues play an important role in supporting the horse racing industry in their respective states. They generate purse funding, support the local agricultural industries, support local charities, create jobs and drive meaningful economic impact in their communities. In Virginia, we also plan to continue to grow and optimize our Virginia HRM footprint. Through our ownership of Colonial Downs, we have the sole right to 10 HRM licenses and 5,000 machines in the Commonwealth. Our portfolio generates strong margins and free cash flow while supporting racing purses, tax revenues and jobs across the state.

We are exploring options to run referendums in the town of Pulaski and in Amherst County, both in the western part of Virginia that would allow us to further expand our HRM footprint. We believe both jurisdictions are underserved markets with attractive growth potentials. In Kentucky, our 8 HRM venues operate approximately 5,300 machines and continue to generate strong growth and significant purse funding. Since Derby City Gaming opened in 2018, purses at Churchill Downs Racetrack have increased from less than $40 million to more than $100 million. We see further long-term growth through leading gaming content, enhanced entertainment, new products, including electronic table games and selective expansion.

In New Hampshire, as I discussed earlier, we are excited about the opening of Rockingham Grand Casino in mid-2027. We also retained the HRM license associated with Chasers and Salem and we'll pursue attractive alternative uses for that license. The third cornerstone is TwinSpires. TwinSpires remains focused on expanding interest and participation in horse racing wagering through innovation and broader direct-to-consumer and business-to-business distribution. During Derby Week, TwinSpires again set records for wagering, new registrations, first-time depositors and active players. We intend to build on that momentum. In summary, the second quarter delivered record results and demonstrated the strength of our core businesses. Our Churchill Downs Racetrack and Rockingham Grand Casino projects remain on time and on budget. We are executing a long-term strategy with the Kentucky Derby, HRMs and TwinSpires serving as the pillars, and we will seek to sell our wholly owned regional gaming properties to pay down debt, to repurchase shares and to selectively reinvest in our business.

Our strategic decision-making, disciplined capital allocation, strong balance sheet and portfolio of unique and iconic assets have positioned us well to drive sustainable long-term growth. This is an exciting time for our company and our shareholders. With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia?

Thanks, Bill, and good morning, everyone. I'll review the key drivers of our second quarter financial performance and then discuss capital management. Starting with our second quarter financial results. As Bill noted, we delivered all-time record revenue and adjusted EBITDA. Our Live and Historical Racing segment and our Wagering Services and Solutions segment also achieved all-time record results. Momentum in our Live and Historical Racing segment remained strong with adjusted EBITDA increasing 7% compared to the prior year quarter. Adjusted EBITDA for Churchill Downs Racetrack was up $16 million for the quarter, driven by the successful running of the 152nd Kentucky Derby.

We continue to expect Derby Week to contribute $15 million to $18 million of incremental adjusted EBITDA in 2026 compared to the prior year. The combination of our recent Derby capital projects, the renewal of our NBC broadcast contract, the running of Oaks during prime time television, the expansion of Derby Week race days and increased sponsorship and wagering interest all reinforce our confidence in the Derby's long-term earnings power. Our Kentucky HRM properties delivered strong results with adjusted EBITDA up 10% year-over-year, driven by strong growth across both Western and Northern Kentucky. We also benefited from the opening of Marshall Yards in February.

Revenue trends in these markets have demonstrated sustained consumer durability and demand in these markets remains resilient. In Virginia, adjusted EBITDA increased 1% compared to the prior year quarter, led by continued strength at The Rose. Since opening, The Rose has delivered sequential quarterly growth in GGR per machine per day, supported by expanding guest awareness, effective marketing and higher spend per visit. Revenues and margins also improved sequentially, reinforcing our confidence that The Rose is still early in its development and has meaningful growth potential ahead.

At our Central Virginia properties, results continue to reflect near-term competitive pressure. We are responding with targeted marketing and guest engagement initiatives designed to stabilize performance and improve returns over time. Overall, Virginia margins have remained at 46%, consistent with the prior year quarter. Turning to our Wagering Services and Solutions segment. Adjusted EBITDA increased over 8%, driven by growth in TwinSpires horse racing and continued expansion of our Exacta platform. TwinSpires adjusted EBITDA also benefited from lower legal expenses in second quarter than in the prior year quarter. And last, regarding our Gaming segment, adjusted EBITDA increased 5% compared to the prior year quarter. Our wholly owned regional gaming properties performed in line with expectations given the cessation of HRM operations in Louisiana in May of last year.

Overall, second quarter same-store margins at our wholly owned casinos were essentially flat to the second quarter of last year. Consumer trends have improved from both the prior year quarter and first quarter levels. Higher value rated play remains strong, while our lower-value unrated segments were consistent with the prior quarter trends. Turning to capital management. In the first half of this year, we generated record free cash flow of $474 million or $6.70 per share, demonstrating the strength and consistency of our operating model. Our strong free cash flow generation continues to support both reinvestment in high-return growth projects and meaningful capital returns to our shareholders.

We spent $79 million on project capital in the first half of the year and continue to expect full year spend between $180 million and $220 million. We spent $38 million on maintenance capital in the first half of the year and continue to expect full year spend between $90 million to $110 million. We remain disciplined in our management of capital given our commitment to reinvesting selectively in Churchill Downs Racetrack and high-return live and historical racing projects to create long-term shareholder value. significantly reducing our leverage, maintaining consistent growth in our annual dividend and repurchasing shares of our stock when our shares are trading below their intrinsic value. We have reduced our leverage over the past 12 months. At the end of June, our bank covenant net leverage was 3.7x, reflecting continued strong operating cash flow generation from our recent investments.

As Bill discussed, our intention is to use any asset sale proceeds to significantly reduce our leverage. We've also returned significant capital to our shareholders over the past 10 years. Since late 2015, we have returned over $2.4 billion to our shareholders through share repurchases and dividends. As of the end of June, we have $430 million remaining under our share repurchase program. We intend to repurchase shares of our stock in the second half of the year, given the current market dynamics and the nominal impact that our planned share repurchases will have on our leverage. We expect bank covenant net leverage to remain in the 3.6 to 3.8x range through the end of the year. And in 2027, we expect that it will drop based on our cash flow projections and if and when we complete any regional gaming asset sales. 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.

From a financing perspective, given the current market environment, we are in active discussions with our best-in-class relationship lender group regarding refinancing alternatives for our near-term debt maturities and our credit facility. We tend to be opportunistic regarding our capital structure over the next few months. Overall, we have a very strong balance sheet to support our future growth. With that, I'll turn the call back over to Bill so that he can open the line for questions. Bill?

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

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

Thank you for the very thorough comments. I wanted to just ask a little bit more about Virginia. Can you maybe talk a little bit more about the remaining HRM deployment strategy, how you're sort of balancing that with the evolving competitive dynamic in the state? And anything you can share in terms of your goal of increasing the deployment limit in the state?

Barry, thanks for the question. The way it works in Virginia is we're entitled to 10 licenses, so 10 places where we can deploy machines and a total of 5,000 machines across the jurisdiction. And by jurisdiction or by county and town, there can be some limitations that apply to where we can deploy the machines even when we're approved for a license. So we still think there's lots of opportunity in Virginia, and we wish and are working towards getting more than 5,000 machines over time. But right now, we're working within the 5,000. So in the central part of the state, we've seen the introduction of the Petersburg Casino in January or early February of this year.

And that's had some impact in the short period of time since then on our properties such as Richmond and New Kent. And even a little bit of Emporia, that's had some impact on the performance of those properties. But as often is the case, it's disruptive when a new property opens and you adjust, you take the lessons that the market gives you, you learn from those and you adjust your marketing and you adjust your competitive positioning. And we'll continue to do that as we face that additional competition. And I think you'll see us perform strongly and make adjustments and make improvements to our efforts there.

And across the rest of the state, as I mentioned, you'll see us run 2 referendums in more of the Western portion of the state, near Blacksburg and Lynchburg. And we'll look to use the remaining machines we have, also look to responsibly and sensibly redeploy machines from other facilities where we think we can get a higher return off those machines by moving them around. So in all, in all it's a bit of a chess board in the state finding the best places to open up licenses and finding the best place to deploy the machines and again overtime I hope we have more licenses and machines to play within the jurisdiction.

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

So on the strategic review, Bill and Marcia, and I appreciate there's only so much you probably want to say. But maybe you could just talk about how you see the health of the transaction market right now for these types of assets, maybe key into the dynamics that we're seeing play out at some of your peers that are looking at high-profile transactions if that helps or hurts your cause.

Sure thing, Brandt. Thanks. These are great assets. These -- first and foremost, these are assets with long histories of good cash flow generation, good returns on capital and performance. So with that -- starting with that premise of we have good assets. Certainly, it's the case that there's activity in the market in this space in general. We can all see that and people can take from that what they wish. But we think this is an excellent time for us to go to market. Like I said, in our case, I think we'll be looking at more individual or small bundles of transactions based on different buyers' interest and needs. But first and foremost, the most important thing to highlight is we're selling proven strong assets that ought to fit in other people's portfolios and other people's plans. And -- and from our perspective, we're pleased with the environment and pleased with our plan to take these properties to market.

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

Bill, I appreciate all the strategic commentary. When it comes to the Derby, you laid out, I think, a pretty detailed list of the avenues through which the earnings potential there could grow, right, sponsorship, ticket sales, et cetera. Two questions. One is help us without guidance, of course, maybe rank order where you think the biggest opportunities are in the medium term? And then second, based on where you sit today, where you have put some capital in and are putting more in, how should we think about the trajectory of earnings growth medium term and whether there are certain gating factors we can look to for an inflection presumably upward in the earnings power at the Derby?

Thanks, David. So as I highlighted in my comments and you just hit on, too, everything is moving in the right direction with respect to the Derby. So whether you're talking about admissions revenue, broadcast revenue, sponsorship, wagering, all of every metric by which we measure the Derby and evaluate the performance of the business, every single metric is moving in the right direction, and that's a great place to be when you operate a business. You don't always find that in every business at every time. But with the Derby, we found that. That's the environment we're in, and we're the beneficiary of the history of the events, the fact that it's cut above the noise that you find in a broad, diverse American public to reach a national presence and at a place where America stops and pays attention.

It's hard to achieve that in America, and we've achieved that with the Derby. So with that caveat that everything is moving in the right direction, certainly, you see that in terms of step function growth, you see the work we're doing on Victory Run. And when that reaches fruition, particularly in Derby 2028, you're going to see the first of the rounds of additional growth that comes from that capital investment. But even with smaller capital investment, even with smaller projects, you'll see growth. You'll see additive revenue and you'll see momentum. For me, I'm particularly excited about some of the experiments we're running in the infield. You may have noticed when we talked about the infield projects, -- we're putting in temporary structures, cabanas, temporary seatings around the winners Pagoda.

We need to do some experimenting there. We need to test some concepts before we want to go with permanent structures there. So we can really take some of the lessons we think we've learned from what we've seen in other parts of the world and in other parts of the country, even with other events to see how they'll work for us. So building out the physical facility, changing the physical facility, innovating around the physical facility is, I think, the beginning. I think when you talk about broadcast, when you talk about sponsorships, first and foremost, it's what's that event on the ground? What's that event like to participate in.

So first and foremost, I think we start with that. And I think there's a lot of momentum on sponsorships. You've seen the new NBC deal and the impact and the contribution of that. And all of these things fit together and they all move generally in the same direction. But first and foremost, it's about delivering a world-class unique special American event. We think we have that formula, and we'll keep innovating around that formula to grow it.

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

It does feel like we're kind of making a strategic pivot here, right? I mean you guys are selling regionals, you repurchased United Tote and then you attempted to get more involved with Preakness, right? So it does feel like you're leaning into racing. Can you maybe give us a peek under the hood about how you think about expanding within racing and especially as it relates to maybe being more involved within the Triple Crown?

Well, happy to do that, Dan. I think like a lot of segments of American business, there's a flight to quality. And whether you look at our TwinSpires asset or the Derby, you see real opportunity to build around things that work and to enhance those things.

So certainly, within horse racing, our focus is on what's best about horse racing, what's most interesting about horse racing and what's resonating about horse racing with the American consumer and the global consumer. And that's what we focus on. Not every aspect of the horse racing space, not every track out there -- but the things that we see work, the things that are delivering growth that are delivering excitement that are delivering better television ratings, et cetera.

So yes, we do see opportunity in horse racing. I think you see other people do it, too. I didn't mention it in my comments, and I haven't been asked about it, but you see lots of interest out there around leagues and different ways of packaging horse racing. Those are all things of interest to us as well. Those are all things that we pay attention to as well. So you'll see us focus more on that. You may see more exciting innovations announced from us around that. But we don't shy away from what we think is working. And there's -- the top end of horse racing is working, and we've got the formula of building events, building purses, building attendance, building sponsorship, and we think we can expand on that formula.

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

Bill, Kentucky HRMs continue to be a bright spot kind of quarter after quarter here with EBITDA moving in a solid direction. Can we get an update on the ETGs that you guys put in? And maybe just if we look back over the last 6 months, just some of the learnings that have happened at some of these properties and maybe where that leads us or brings us to in the coming years?

Yes. I think right now in Kentucky, it's maybe 1% of our machines deployed and 2% of our revenues. So we need to go faster. We need to keep pushing on that, and we will. This is the beginning of a new thing. So for us, we want to introduce more titles. We started with Roulette. We're working on other games. And we'll keep pushing on that to not only expand Roulette, but to introduce different products and move in lockstep with the market absorbing the new games, the regulatory authorities being comfortable with new games and otherwise fitting it in with our host of other marketing and other strategy to grow those properties. So it's an important piece. I think you'll find over time it comes more and more important for our performance, and we're going to move as fast as we responsibly can while fitting it in with our other strategies and efforts to grow those properties.

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

Just piling on the theme of sports as an asset and kind of focusing this on your HRM business. Has there been any more teachings or learnings from other states? Just really understanding kind of what Churchill Downs and other constituents do for the industry that could potentially lead to further expansion in the U.S. from an HRM standpoint?

Thanks, Chad. Yes, HRMs has been an incredible bright spot for our company a business model and a series of assets that we just have a high degree of confidence that we can grow and expand and innovate around. So for us, there's a lot of opportunities for HRMs within the jurisdictions where they are deployed. We hope to find other jurisdictions, both domestically and internationally where we can grow into as well. So with the quality of the product as it continues to improve, just the availability of titles, the business model as a whole, where it's often used to fund purses, fund agricultural development, fund horse racing in general.

There's a real synchronicity to it that works for a lot of states. So it delivers the product. It delivers the impact for the state and the governments that approve it. And for us, it's a vertically integrated product offering where we have not only physical sites where we can deploy these, but also the Exacta technology, which is integral for their operation. We just think there's a lot that we can do there. And when we do talk to other states and when we do talk to the states where they are deployed, we do so from the confidence of demonstrating that we've kept our promises in terms of what the impact of this can be for the state for job creation, for the horse industry, for agriculture, for the tax base, et cetera. So it's a formula that's worked where these assets have been deployed, where this model has been deployed. And we think there's plenty of opportunity for more of that.

So for us, it's one of the pillars. It's one of the cornerstones that we intend to drive growth around over the next number of years.

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

As a follow-up to Dan's question on the clear kind of horse racing focus, do international horse racing fans become more of a priority now? And high level, are there certain countries around the world where you all see the best customer demand dynamics where you would like to grow?

Yes. So certainly, we always found strong international interest in attending the event, but building programs and strategies around recruiting international or driving international attendance has been something that we've been more recently focused on. So we do think that there's enormous international interest in the Kentucky Derby, just enormous, both from an attendance perspective. And we also think from a sponsorship perspective. So those are 2 areas of real focus for us.

Interestingly, just about everywhere you go in the world, you find the Thoroughbred horse industry. So whether you're talking the Middle East or Europe or Japan or China, you find interest and a history in this sport. And for many of these non-U.S. international fans, the Kentucky Derby represents the pinnacle of the sport, arguably the pinnacle of the sport and certainly the pinnacle of the sport from an American perspective. there's great interest. And our brand is well received and well understood in a lot of these jurisdictions. So the challenge for our team is building the programs to fully harness that interest from an attendance perspective, from a sponsorship perspective and occasion from the wagering perspective, although the wagering rules around the world are all different in terms of access to wagering for the citizens.

So it's a big focus going forward. This is why we've started the European and Middle Eastern Road to the Derby, the Japanese road to the Derby. You'll see innovation around those pathways all with the intention of driving earlier awareness and participation and anticipation of the Kentucky Derby and perhaps some of our other races as well.

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

I wanted to follow up on David's question from earlier on the Derby and some of the key growth initiatives and really specifically drill down into the midweek strategy. Bill, could you just maybe add some color here and help us think about sort of the long-term strategy and potential financial uplift? What is sort of -- what does visitation revenues look like today up through Oaks Day? What are some of the new initiatives that you've either already put in place or being considered to try to grow that midweek business? And then how should we think about sort of both the direct flow-through impact of driving more midweek visits as well as if there's any sort of indirect benefit from improving the overall guest experience and driving higher loyalty for Derby Day itself?

Sure, Jeff. Happy to do that. As I mentioned in my comments, in 2026, we had about 386,000 guests attend Derby Week. So somewhere around 150,000 of those came on Derby Day. So the substantial majority of our fans are actually coming on other days of the week in totality. So we saw just a great thrilling response from putting the Oaks on national television for the first time on NBC. We were thrilled with those numbers, so was our broadcast partner, NBC. And essentially every day of the week now, starting with opening day and then the Sunday and then Tuesday, Wednesday, Thursday, Friday and then the Derby on the following Saturday.

Every one of those days of the week has its own brand and its own identity and its own contribution to the week as a whole. And we continue to develop each of those days around the themes that have proven to work for those days. So what we found is the Derby is a spectacular sort of overwhelming event and one that's a must-see. But for lots of people in the region, locally in the region and increasingly across the country, they pick another day as well to enjoy, and we're encouraging of that. We're thrilled by that. And each day has its own business model now and its own brand that we'll look to develop. So certainly, the Derby then followed by the day before with the Oaks, those are the premier -- that's the Pinnacle, that's the finale.

But every day offers a little bit something different, a little bit different price point, a little bit different brand and style, and there's something for everybody. And since we don't really ever work towards pushing the Derby crowd north of 150,000 certainly, we've been north of 150,000. Certainly, we have been higher than that. But 150,000 is when we think about -- it's the level about which we think we can offer the best experience for our customers. So to soak up the rest of the demand and to develop our customers as best we can, we really need to push them to the other days, not just Oaks, but those other days. So you'll see us continue to invest in marketing and brand development each of these days. And I think part of the future for the event is driving more of a festival atmosphere.

There already is one, but a festival atmosphere not only at the track but across the community and the region to capture more visitation to capture more participation and to acknowledge that we need to have a variety of price points in order to do that, not just the Pinnacle day of Derby, which, of course, is a big day and a very competitive day from the perspective of seat availability and everything else. So it's a big part of our future. It's a big part of what we want the event to be perceived at both nationally and internationally, and it's working extremely well.

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

For Bill or whoever wants to take it, I just want to get some thoughts on -- sticking with the Derby theme here, a little bit around just your experience with some of the expanded programming during the Derby Week. Sort of what I'm specifically wondering is how you think about maybe the ramp or the seasoning. Maybe an easier way to say it is just what you kind of learned from the Oaks and the move to prime time this year, just how that influenced betting behavior and how you think about, again, maybe optimizing or spreading that event kind of throughout the course of the broader weekend. appreciating that this was year 1, sort of what did you learn? What do you think you can do maybe a little bit better? What can you take into next year for further improvement? Do you think there's a bit of a multiyear opportunity to optimize this?

Sure, Shaun. So -- the ability to get the Oaks on prime time television was a really important development for the Oaks and for our company. And as I mentioned, our broadcast partner, NBC, was thrilled with the results and so were we. So I would say 2 things to building an event across the United States, which are increasingly important is awareness and distribution. So awareness -- we're building that for the Oaks. But also, I'm always focused on that for our team for the Derby itself, too, because the day comes and you don't want people to miss it because they forgot it was going -- it was on Saturday. So having the Oaks on prime time is a great reminder to everybody that the Derby is the next day.

So in addition to building the Oaks itself, it's also an opportunity to remind everybody to not miss the Derby on the following day. And that goes for everything we're doing with the week of festivities and the week of racing around the Derby and prior to the Derby. So what worked is we're on national television and we're pleased with the results. And we'll continue to build the Oaks, which by virtue of doing that, also furthers the Derby. And you saw that in the wagering. You saw that in the viewership, record viewership for the Derby. Record viewership for the Oaks and record viewership record wagering across the week for all of our races. So everything can feed into each other. But generally, we're looking for awareness and distribution and brand building of each day of the week.

But the most important days are the Thurby, which is on Thursday, the Oaks and then, of course, the finale with the Kentucky Derby. So we think a lot of our programs and a lot of our strategies are working extremely well, and we think those show up clearly in our attendance numbers in our wagering numbers, in our sponsorship numbers and in our viewership numbers.

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

Two different questions. One and kind of separate. One, just -- I know it's early days, but curious you guys' thoughts about the newly announced horse racing league, any conversations you're having with them and what that might mean for the Derby and the business going forward? And then two, just around the M&A, curious how you guys are thinking about the JV assets? And then if a buyer was to present itself that would want to just purely buy the properties and leave the OpCo with you guys, would that be something you'd be willing to do?

Okay. Let me unpack that. There are different categories of questions within there. So first, on horse racing leagues, -- there are actually several that are being contemplated that have been announced and that I believe everyone -- every potential league that's out there, I think one of their first calls is always to us. And so I feel like we've had good exposure and a good chance to learn about these leagues as people contemplate them. And we encourage the leagues. It's -- again, it's like the quality. It's around building more awareness, more continuity and a broader distribution for our sport and for our company. So in general, we're strongly encouraging of the different leagues. Obviously, there can't be 10 new leagues that appear. There will be winners and losers in this process, but we encourage that process occurring.

And we have our own ideas of what's of interest to our company, what we think will work from the perspective of a league that would have that would have staying power. So we're sorting out our options, but I think it's fair to say that we're very interested in these concepts, and we'll make a move with respect to one of these concepts or to our own -- with respect to our own concept when we're ready and when we have confidence that it's an idea that will resonate with the American public. With respect to the M&A process that we highlighted during our earnings comments -- our prepared remarks, we completed a really comprehensive, thoughtful review of all of our assets, and we're focused on our 9 wholly owned assets. That's that's where we think there's the most opportunity for transactions in the short and midterm, and that's what the team is focused on and where we think it's the best use of our time.

So we're not selling any other assets. We're not contemplating or announcing that we're selling other assets. We're focused on the assets that I listed today that we've discussed and decided with our Board made the most sense for us to pursue. In terms of OpCo/PropCos and that sort of structure, No, we're not focused on that. We're going to sell these assets as we announced. There might be other buyers that will participate in a variety of different ways, including OpCo/PropCo structures for some of them. We encourage whatever makes sense for potential buyers. But for us, we've announced the sale of these assets, and that's what the team has been tasked with working on. And there aren't any nuances around it like just selling the real estate. We're not interested in doing that.

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

Bill, I was wondering, with the Pennsylvania Supreme Court decision recently on gray games, does that adjust your view on either, say, the opportunity in Pennsylvania or any other, say, budding states for HRMs -- because now we've seen 3 rulings, Kentucky, Virginia and now Pennsylvania. And I'm wondering that's probably a pretty good tax incentive for other states to pursue this.

Yes. A really interesting question, Joe, just for everyone on the call. In June, the Pennsylvania Supreme Court definitively ruled that the so-called skill games that are deployed in Pennsylvania are illegal gaming devices, and they established a grace period before those machines needed to be removed from operation. And that period ends October 15. So what you have there is a market that gray game, illegal operators came in and cannibalized very quickly. There's a variety of estimates of how many machines of these illegal machines are deployed in Pennsylvania, numbers running from 70,000 to north of 100,000 of these machines.

And now it's clear under Pennsylvania law, as we've seen in other jurisdictions too, Kentucky, Virginia. Now it's been made clear that these machines are illegal. And as a legal gaming operator in jurisdictions like Kentucky and Pennsylvania and Virginia, that's good for our business. We play by the rules. We're licensed. We pay taxes. We contribute to other avenues as the government requires us, whether it be horse racing or otherwise. And it's not fair, it's not regulated, and it's not right when folks just come in and open up illegal gaming operations. So this is going to be good for Presque Isle.

This will improve whatever happens from this point, whether there is a new -- whether the machines are just completely removed from the jurisdiction and not replaced with any distributed gaming, that's good for our facility. If there are -- if there's a movement of foot to tax, regulate and legalize some form of distributed gaming, well, then they'll be playing by the rules like we play by the rules. So that will be good for us as well. So all in all, it's a good thing for gaming operators when you have events like we just saw in Pennsylvania with their Supreme Court and like we've seen in Virginia and like we've seen previously in Kentucky.

And it gives confidence to those of us that operate under regulated gaming jurisdictions and play by the rules and pay our taxes, it gives us confidence that while there can be bumps in the road and uncertainty for a while, eventually the states get it right and allow our business model to function as intended and achieve the public policy objectives that the state intended when they legalize gaming. So I think it's good news ahead for Presque Isle in Pennsylvania. Regardless of what happens from here, I think the operations there are likely to show improvement, and we're pleased with that. And we'll keep pursuing what we do, which is regulated licensed gaming models in jurisdictions where we're welcomed and clearly legalized to operate.

I'm showing no further questions. So with that, I'll hand the call back over to CEO, Bill Carstanjen for any closing remarks.

Thanks, Andrew. We covered a lot of ground today. I appreciate everyone's time and everyone's interest in our company. And we have a lot to get done between now and the end of the year, and we're going to get right on it, and I look forward to talking to everybody in October when we next speak. So thanks very much. Talk to you all soon.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated First Quarter 2026 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 first quarter 2026 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2026 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 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, 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 high-level overview of our first quarter performance and key strategic developments. Marcia will then walk through our financial results and capital management strategy in more detail, and then we will open up the call for your questions. Let me start with a few key highlights from the quarter.

First, we delivered a strong start to the year with record first quarter net revenues of $663 million and record adjusted EBITDA of $257 million. These results reflect strong execution across our portfolio and continued momentum with our growth strategy. Second, we successfully opened our Marshall Yards historical racing machine venue in Calvert City, Kentucky, on time and on budget. This marks our eighth HRM facility in the Commonwealth.

Early performance has been encouraging, and the property is already contributing to job creation, increased purse funding for Kentucky's horse racing industry and long-term shareholder value. Third, we continue to see strong progress in Virginia, where we remain committed to supporting the renaissance of Thoroughbred racing. We will host 48 race dates in 2026 and expect to generate significant purse funding from our HRM operations across the state that will be distributed during our race meet at Colonial Downs.

We also ran a successful Virginia Derby in March, and we are excited that the winner, Incredibolt, will have the opportunity to compete in this year's Kentucky Derby. We were very pleased with several positive developments in Virginia during the closing stages of the 2026 legislative session. The Governor vetoed legislation related to skill games and a proposed new casino in Fairfax County. iGaming also did not receive approval. These outcomes support a more attractive operating environment, and we remain committed to continued investment in job creation in Virginia.

Another example of our strategy around smart transformative investments in the Thoroughbred industry is reflected in our announcement earlier this week. We signed a definitive agreement to acquire the intellectual property rights to the Preakness Stakes and the Black-Eyed Susan Stakes from a subsidiary of The Stronach Group. This includes all trademarks and associated rights with respect to the Preakness stakes, which is the second leg of the Triple Crown stakes, which is the second leg of the 3 related races for the Phillies.

We expect -- second most wagered on race in the country. The Kentucky Derby is, of course, first by a very wide margin, followed by the 2 other Triple Crown races, the Preakness and the Belmont Stakes and then our own Kentucky Oaks race. Let me now turn to the Kentucky Derby and our vision for long-term growth.

We continue to invest in enhancing the Derby experience. And for this year's event, we are unveiling several exciting upgrades. We have completed renovations of The Mansion, one of the most exclusive hospitality areas, offering exceptional views of the track and finish line. Our Finish Line Suites have also been significantly upgraded, creating a more integrated high-energy hospitality experience with improved flow and premium amenities. These are our most exclusive suites, and we are very excited to show our customers a reimagined and unique setting.

Following this year's Derby Week, we will accelerate the work on the Victory Run project. As I discussed on our call in February, we will finish this project in time for the 2028 Kentucky Derby. This new structure will offer spectacular premium suites on the first level. The guests in these suites will be able to walk to the rail to watch the races. Victory Run will also incorporate covered box seating and multiple high-end dining experiences on the second through fourth levels of the building.

These projects are designed to deliver strong long-term returns while offering exceptional guest experiences. Looking ahead, we remain focused on expanding Derby Week into an even broader week-long national and international event. Last year, we welcomed more than 370,000 guests across Derby Week, roughly the equivalent of 5 Super Bowls in 1 week. We see significant opportunities to continue growing the entire week with respect to attendance, wagering, viewership, sponsorship and EBITDA.

As part of that strategy, we are expanding Derby Week with the addition of racing on Sunday, April 26. And for the first time, the Kentucky Oaks will be broadcast in prime time on NBC and Peacock, giving us a powerful platform to expand the reach of this prestigious race and the broader Derby experience. At the same time, the continued growth of Derby Week is attracting innovative global partnerships. These partners are increasingly focused on premium experience-driven engagement and the Derby Week offers a unique platform to deliver that at scale.

Our partners recognize that activations at live sporting events have become more coveted given the significant growth in the experience economy. When coupled with premium hospitality offerings during Derby Week, our partners can provide once-in-a-lifetime experiences for their customers during one of the most marquee live sporting and entertainment weeks in the world.

Over 152 years, the Kentucky Derby has become an iconic event in sports and entertainment. We are going to build on that legacy by continuing to expand its reach and relevance for future generations. Turning to our HRM portfolio. Our venues in Kentucky and Virginia are performing well and play an important role in supporting the horse racing industry in their respective states. They generate first funding, support the local agricultural industries, create jobs and drive meaningful economic impact in the communities where we operate.

We will continue to invest in HRM venues and product offerings. We introduced roulette electronic table games or ETGs based on historical horse races at 6 of our Kentucky HRM properties during the first quarter. Early indications are very encouraging, and the new ETGs are certainly accretive to our GGR in Kentucky. We will be rolling out additional machines throughout 2026 and beyond. We are increasing our marketing of this new offering and awareness is building at each of our properties. We are also working on developing additional HRM-based ETGs, including Craps and then Blackjack to attract an even broader customer base.

Looking ahead, our Rockingham Grand Casino project in Salem, New Hampshire remains on track for a mid-2027 opening. This development represents another compelling opportunity to expand into an attractive market with a high-quality entertainment offering. In summary, this was a strong start to 2026. We delivered record results, executed on key strategic initiatives and continue to invest in high-return growth opportunities across our portfolio.

Churchill Downs remains exceptionally well positioned with a strong core portfolio of businesses and a clear path for long-term growth. We are confident in our ability to deliver consistent and meaningful value for our shareholders. And before I turn it over to Marcia, a quick reminder. Derby Week begins this Saturday, April 25 with opening day and culminates on Saturday, May 2, with the 152nd running of the Kentucky Derby. We have an exciting week of racing and events planned, and we look forward to hosting many of you in person. We are anticipating an exceptional Derby and Derby Week, significantly outpacing not only last year, but also Derby 150 in 2024. If you have not secured your tickets yet, we encourage you to do so, we expect to be fully sold out.

With that, I'll turn this over to Marcia. Marcia?

Thanks, Bill, and good morning, everyone. I'll begin with highlights into our financial results and then provide an update on capital management. First, regarding our financial results. As Bill noted, we delivered record first quarter revenue and adjusted EBITDA with both our Live and Historical Racing segment and our Wagering Services and Solutions segments achieving record performance for the quarter.

We are pleased with the continued momentum in our Live and Historical Racing segment. Adjusted EBITDA increased by more than $11 million or 11% compared to the prior year quarter. Our Kentucky HRMs delivered outstanding results with adjusted EBITDA increasing more than $9 million or 17% compared to the prior year quarter, driven by strong growth across both Western and Northern Kentucky. Our Kentucky growth also reflects the opening of Marshall Yards in February.

In Virginia, adjusted EBITDA increased by $3 million or 6% compared to the prior year quarter. This growth was supported by continued momentum at The Rose, which delivered sequential increases in the GGR per machine per day for each month of the first quarter. Our team is making great progress in marketing the property to attract new guests and increase spend per visit.

We're encouraged by the continued top line growth and increase in the margins at The Rose and believe the property remains in the early stages with a long runway for growth. At Colonial Downs Racetrack, we successfully held the Virginia Derby in March with sold out attendance and a 19% increase in handle over last year, making it the third highest wagering day in Colonial Downs history.

Performance at our other Virginia properties was impacted by weather and increased competition. We are actively optimizing our marketing and operating strategies and remain confident in the long-term performance of these properties. Turning to our Wagering Services and Solutions segment. Adjusted EBITDA increased 8%, driven by retail sports betting, contributions from our online sports betting market access agreements and continued expansion of our Exacta platform.

TwinSpires also delivered modest growth in adjusted EBITDA, primarily due to lower legal expenses. And last, regarding our Gaming segment, our wholly owned regional gaming properties performed in line with our expectations, given the cessation of HRM operations in Louisiana in May of last year and $2 million of weather-related disruption in January. Overall, first quarter same-store margins at our wholly owned casinos were relatively consistent with the first quarter of last year.

Customer trends have improved versus the prior year and remain consistent with the prior quarter. We see continued strength among higher value rated players and some softness outside of Kentucky and lower-value unrated segments. We are actively refining our marketing strategies to capture opportunities across both segments.

Turning to capital management. We generated $276 million or $3.94 per share of free cash flow in the first quarter, reflecting the strength and consistency of our operating model. Our strong free cash flow generation continues to support both reinvestment in high-return growth projects and meaningful capital returns to shareholders.

Project capital expenditures were $40 million in the quarter, and we continue to expect full year 2026 project capital spend of $180 million to $220 million. Maintenance capital expenditures were $19 million in the quarter, and we continue to expect full year 2026 maintenance capital spend of $90 million to $110 million. We ended the quarter with bank covenant net leverage of 3.9x, reflecting continued strong operating cash flow generation from our recent investments.

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

Thank you, Marcia. Okay, everyone, I think we're ready to take your questions now.

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

I may have missed this as the audio was a little off before. But can you maybe detail a little more about the fee structure for the Preakness IP? And also if you have any wider thoughts on the longer-term strategy there?

Barry, thanks for the question. Sorry if there were any difficulties with the audio. Certainly happy to cover anything that slipped through the cracks. So the fee structure in Maryland is a 2-part structure. First, a base fee of $3 million that grows at 2.5% every year starting in 2028. It does not apply for the 2027 Derby, and we haven't closed -- Preakness, I should say, we haven't closed on the purchase of the intellectual property yet at this point either.

But starting next year, it's a $3 million base fee. From that point on, it grows at 2.5%. And then the second portion of the fee is 2% of handle for the Black-Eyed Susan day plus the Preakness day. So you add those 2 amounts together and you get the total. Last year, the Preakness and Black-Eyed Susan day in combination did about $140 million of handle to give a rough perspective on where it is at this point. So for us, it's a thrill to be a part of that. That's, in our view, an iconic asset. And having been in the game for a long time, I'm familiar with the history of the Preakness, and I know what it's been in the past and what it can be in the future. So we're happy to participate and work with the state as they see fit to help build them back to their former glory.

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

Bill, just another one on Preakness. As we think about your capital allocation parameters and in the past, you've talked about investing in the ecosystem, looking for things with local monopolies, ability to improve operations of an asset over time. How does this investment in Preakness fit into that? And how do you think about this maybe potentially evolving over kind of the medium to long term?

Thanks for the question, Dan. So first, some of those attributes come in connection with iconic assets, unique assets, special assets that can have different attributes than everything else over time. And we think the Preakness is one of those assets. We think it has tremendous potential, tremendous history.

And as it unfolds, we certainly are available to the state and happy to work with the state to help them figure out how best to transition that property into something great like it's been in the past. So for us, it's entirely consistent with how we look at things like the Derby. In my opinion, the Derby is always what's most special and what's most unique about our company, and it's an asset that can't be duplicated. It's just a very special, unique piece of Americana. And we think Pimlico and the Preakness has elements to that itself, and it's about developing those and encouraging those things to happen over time.

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

In the past, you all have talked about growing the international customer base for the Kentucky Derby and U.S. horse racing in general. Outside of the dollars generated, how do you all measure success there? And what are your goals over the medium term, so the next 5 or so years?

Well, Dan, thanks for that question. That touches on a theme that's personally really important and significant to me. I think we have this unique American event, and there's an irony to that because over the long 152-year history of the Derby, that hasn't necessarily been the focus -- the international piece hasn't necessarily been the focus of our efforts. But despite that, we still have this global brand.

So focusing on building that is critical going forward. It starts with attendance. It starts with encouraging more folks in the overseas markets, starting with those that have an attachment or an interest in horse racing to come experience this event. And from that, it builds into sponsors and partnerships. And those are the more important elements. Certainly, in some countries, wagering can be possible. Japan is an example of that.

But first and foremost, it's about driving high-end customer participation and encouraging sponsorships. And certainly, attendance and viewership can be a part of it. I don't have at my fingerprints the information this year for all the markets that the Derby will be telecast, but it's a very impressive picture and it's a growing picture. So everything we see internationally from an international perspective is positive and growing and encouraging. And you'll see us focus more on that over the coming years because there's a big population out there in the rest of the world that's in particular, interested in Thoroughbred racing as well as the United States. And our job is to attract those people and bring them here in the higher echelons of our ticket offering.

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

Bill, one for you, I guess, related to government affairs or the legislative win in Virginia. Obviously, you can't predict future legislation, but anything you can kind of highlight in terms of why this was vetoed, if the governor or other constituents are just realizing the impact onto the state. We're just getting a lot of questions if this will become a recurring thing, but anything else you can help on there would be helpful.

Sure, Chad. Thanks for the question. So generally, state legislative processes are busy, messy processes. There's lots of activity. There's lots of divergence of views. It's part of democracy. It's how democracy works. So the fact that legislation is introduced, the fact that legislation is discussed doesn't mean there's consensus in the state on what's going to happen that year or in the future. It's just part of the legislative process.

So I think every year is different in every legislature. And I think every year, they learn from the past experiences and that factors into what they want to do as a state going forward. So I think what happened in Virginia to turn it to Virginia and less from a general comment, what happened in Virginia is part of a healthy democratic process. There was lots of discussions. There were lots of divergence of views and the state came to a conclusion on how they wanted to manage and think about gaming for the time being.

I'm encouraged by some of the dialogue and some of the discussion there that their progression on gaming issues is a positive one from our perspective, and I'm encouraged going forward that there's a forum for discussion, that there's a forum for convergence of views and that our views are respected and heard and part of that process will be reflected in whatever outcomes in the future we might see. But generally, Virginia shows a lot of elements of a very stable environment for us. We believe in that jurisdiction. We believe in the possibility and the potential of that jurisdiction, and we're really glad to be a part of that dynamic in that environment.

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

I wanted to just spend a second on Virginia, if I may. Way back when we sort of made this acquisition, there was clearly a lot of opportunity and what's evolved since then is just more competing licenses and some traditional licenses and forgetting about any discussion about iGaming and will it or won't it one day. Bill, I remember you telling me over lunch a while back that every strategy should evolve as you go to be a good one. Has this turned out competitively the way you expected? And have you evolved your Virginia strategy for that, what appears to be increasing competition in that particular market?

Great question, David. So already, you can see Virginia has been a really strong investment for us. It's been a really encouraging investment. In terms of new competition, you face that discussion in all jurisdictions as a part of the gaming dynamic that you have in the country. And we've progressed through that pretty well. And for us, there will be opportunities, too, as discussions around Virginia evolve over time. So always be flexible. I agree with what you said, always evolve your strategy, always be flexible.

We've done that in Virginia. What we don't control is the noise and the discussion that happened during any legislative session. But we participate vigorously in those discussions, and we always constantly evaluate what's best for our company, where to focus, where to pivot, where to change. But Virginia so far for us through all this noise has been a really, really strong investment. And as we look forward, we see that continuing, and we'll evolve that strategy and roll with the times as we see real pivots that need to be made. So far, so good. It's been a positive experience for us. And for us, it's now focusing on next year and focusing on how we want to evolve our business in that state.

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

Kentucky continues to show some pretty nice growth. Bill, broadly, how do you think about the incremental 4,000 machines you can put in the state? And maybe more specifically, do you see any properties that are ripe for expansion?

Thanks, Jordan. Yes, Kentucky has been a very positive experience for us. It's been a very short-term and long-term great investment for us. So all these properties are still showing real signs of growing into their own skin. They're still -- they haven't reached maturity. They're still growing. HRMs as a product continue to get better. We continue to have more options and more variety of product. And certainly, ETGs are something we feel positively about, and we look forward to expanding our offering both of Roulette and of other products on our floors.

Marshall Yards, we just opened in February. That's gotten off to a really encouraging start. So without exception in the state of Kentucky, we don't view any of these products as being at maturity yet. And I think we'll keep innovating the product, the HRM product and growing into our marketplace in each of these jurisdictions. So more to come there.

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

I wanted to ask about the Derby, Bill, you sounded pretty upbeat about momentum there. But just maybe to put a finer point on it, would you -- how would you compare the impact of geopolitical events to this spring's ticket selling season to last spring's geopolitical events? And Marcia, is there any sort of update to the $15 million to $20 million incremental EBITDA year-over-year that you called out last quarter?

I'll start first. And Marcia, if you want to comment on the last part of the question, please feel free to jump in. So last year, the geopolitical events, which was really the introduction of tariffs for the first time impacted us. It impacted the sales process when it started. I'm pleased to say that this year, we haven't seen that. We are not experiencing geopolitical corrections to our sales process. So all good there, and it's been a smooth and predictable sales cycle for us and a really encouraging sales cycle for us.

And Brandt, from a growth perspective, we are very confident in our $15 million to $20 million of Derby growth over last year's number. And as Bill said earlier on the call, that will be a very significant increase even over Derby 150.

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

Just one from us on the HRM business. Bill, I appreciate some of the commentary earlier on the rollout of electronic table games in Kentucky. I was hoping you might just add a little bit more color here in terms of sort of what do you -- keeping in mind, it's still a small number of units, but what do initial yields look like for these machines? How is this flowing in, in terms of database growth, ability to compete across the border with Class III casinos? Are you seeing some play shift over from slots to these tables? Just any sort of thoughts on initial trends, keeping in mind it's still early would be great.

Sure, Jeff. Thanks. Yes, happy to do that. So even introducing just one single ETG product, which is Roulette, even just having a single product, so with lots of runway to go to add other products, we've seen the addition of new customers. There have been changes to our database and a nice pickup in new customers.

So these are definitely accretive to the GGR on each of our floors. And we've really just started marketing with respect to this new product in April. We wanted time to make sure we worked out the kinks and understood how the products worked on our floor. So we're really just in the first month of marketing it. So I have only good news to report on what we're seeing. I wish we could push a fast forward button and have more product, both in terms of the number of machines we have on the floor, but also in terms of the variety. So every metric we look at in terms of evaluating floor performance is a positive one with respect to introducing this product.

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

Just getting back to some of the kind of more political questions we had earlier. As you said, this whole process can be messy and somewhat unpredictable. So I was curious, is there a scenario by which if you see digital expansion in states in which you operate that was not expected or you didn't want? Is there a scenario which you kind of reverse course and lean into that? I'd expect there will be more of this going forward. And I think everybody would love to hear if, hey, if ultimately iGaming does happen in Virginia, here's how maybe we could benefit.

I think part of participating in legislative process is always thinking through your fallback positions with respect to things that will help your business. Sometimes that can be going into different businesses. Sometimes that can be more product or other benefits to the business you have in the state.

Part of managing through a legislative process is understanding your list of priorities and your series of fallback positions and your willingness and flexibility to pursue new options based on what those options are. So I don't want to comment on any particular line of business other than to say iGaming is a terrible public policy choice for states. It is not one that any state has figured out reliably to protect the consumers in that state.

So with that general caveat that that's a terrible public policy that isn't being handled or rolled out well in the places where you've seen it. With that caveat, yes, we approach every state with a series of strategies based on what we see happening in that state. And I think our track record reflects that we handle all kinds of issues fairly well, and we achieve positive improvements for our business environment in addition to battling things that can be threats to it. So we make the best out of the circumstances we are faced with, and that's part of the skill set you need when you're in the businesses that we're in.

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

On ETGs, I know sort of the rollout of that is an iterative process, and you've answered this a couple of times before, I could appreciate it. But if we kind of zoom out and we think about maybe the typical, say, 80-20 gaming positions, table versus slots, is that fair to assume that you'll likely get there at some point? And is that maybe a goal within 18 months? Or does it take longer? Just wondering if you can give us more broader parameters, say, on the rollout versus, say, in the near term?

Thanks for the question, Joe. We're going to take it one step at a time. We're going to evaluate every change we make to our floor, whether it's adding more of a particular type of ETG like roulette or introducing new and different categories of ETGs.

We're going to take what we see. We're going to respond to the data and to the information that is generated by our experiments with introducing new products, and we're going to react to that. So we don't set a target 80-20 or anything like that. We make smart decisions based on what the data tells us and what our customers tell us on the floor. So we try as a management team to be a data-driven organization. We don't want to make up assumptions. We don't want to stick to assumptions that don't turn out to be entirely reflected in reality. We want to respond to what we see on the ground. And that's true based on the experience of what we see on our floors. That's true based on what we see with political environments. That's true for everything we do in the company. We will respond and plan around what the facts are.

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

Bill or Marcia, wondering if you could comment a little bit on -- I think there's a proposal out there for Maryland historical horse racing machines. I think this may have existed in past iterations as well, but sort of what's your broader take or support? Do you think there's any momentum behind it? And what might the process look like?

Yes. Shaun, thanks for the question. I think you're referring to a bill that came through the legislative process last year. It wasn't passed. It's not law, but there has been a movement, particularly among the off-track betting parlors or OTBs in Maryland to get HRMs. I don't want to comment on that right now.

We're getting our sea legs in the state. We're talking to the government. We're talking to the executive branch. We are evaluating how we can be supportive and helpful to the state in achieving their goals of creating a world-class, best-in-class event that drives tourism and investment to the state in the province. So we're focused on that right now and becoming a more integrated part of that state-driven team. And HRM is a component of the discussion in the state. But I won't comment on it for now as I said, we get our sea legs and become participants in all things racing in the state of Maryland.

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

Just one on Preakness. At risk of being repetitive, I think historically, the property has had its own unique culture and following, which you referred to, Bill. Maybe talk about your ambitions here, both qualitatively and quantitatively, if you can. I guess maybe are you there to assist Maryland if they ask you to? Or is this something that you can start to transform and redevelop near term? I guess I'm just trying to get a better sense of the explicit goal for this property.

Thanks, Ben. Yes, Maryland is in control of the destiny of the Preakness. They have the land. They've authorized legislatively $400 million of bond proceeds to invest in the property. There is another $125 million of other government funds that are available to invest in Pimlico and Laurel Park, which is the training center that they just approved buying earlier this week.

So they have a war chest of about $525 million or so of funds that have been allocated to invest in racing, and they're in control of that investment. We certainly, upon closure, will be the owners of the intellectual property and have started already a very strong dialogue with the state on how we may be able to help them achieve those goals. We have 300 people that work here in Louisville at the track or in our corporate offices supporting our racetrack, doing construction and design, ticketing, sponsorships, wagering.

We have a real team of experts here that do this on an absolute world-class level. And certainly, those resources and efforts are available to the state if they seek our help and would like our help in any way. But those discussions are just beginning, and it's important to let those discussions play out at the state's timing and direction.

I would say that we really love the market when we compare it to, say, our own market here in Louisville and in the Midwest. We love that corridor that D.C., Baltimore up through Philadelphia corridor. There are lots of great customers there. There are lots of great potential sponsors and business partners there. So we love that market. We think it's one with a lot of opportunity, and we have a lot of ideas. But this is something that the state will have to ask for our help for -- ask us to help on. And we've begun that dialogue, and we're excited for that to develop.

Thank you. I will now turn the call back over to CEO, Bill Carstanjen, for any closing remarks.

Thank you, everybody, really great series of questions today. It was really -- it was fun to hear your questions and how you're thinking about our company, and we did our best to answer those. So thank you for your support. This is an exciting time for us. We're now going to go focus on getting this thing called the Kentucky Derby underway. And we hope to see many of you there, and we're going to go work our rear ends off to deliver a great Kentucky Derby. So thanks very much, and we'll see you next time.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

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.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2025 Third 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. Sam Ullrich, Vice President, Investor Relations.

Thank you, Andrew. Good morning, and welcome to our third quarter 2025 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2025 3rd 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, 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 share an update on growth plans for our company, including with respect to the Kentucky Derby and our HRM businesses. 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.

First, regarding our third quarter results. We delivered overall record net revenue and record adjusted EBITDA in the third quarter. We also delivered record adjusted EBITDA for our Live and Historical Racing segment as well as our Wagering Services & Solutions segment. We are also very pleased with the performance of our regional gaming properties in the third quarter. Their results reflect consistent strength from our high end and rated guests, along with nice growth from our unrated players across the majority of our markets. Now let's talk about our plans for the company, both near-term and long-term.

First, regarding our plans for Derby Week and Churchill Downs Racetrack. During our last earnings call, I discussed the 5 key growth catalysts for the Derby that will power the growth of Churchill Downs Racetrack in 2026 and beyond. The first is ticketing revenue driven by premium experiences during Derby Week. The demand for the Kentucky Derby and for Derby Week tickets is continuing to grow as we deliver new and unique customer experiences. We will also realize further incremental ticketing revenue from the investments we have made over the last number of years. One example of this is the Starting Gate Pavilion and Courtyard.

We significantly improved this area this past year and the guest feedback has been overwhelmingly positive. As a reminder, this project transformed 10,000 bleacher seats into a combination of approximately 8,500 premium stadium and trackside box seats. We also significantly improved the amenities for these guests as well as for an additional 2,800 people seated in existing surrounding sections who are now able to access the hospitality options of the newly renovated area. We believe that ticketing revenue from the Starting Gate Pavilion and Courtyard and from other recent investments as well as general price increases will provide meaningful adjusted EBITDA growth for Derby Week going forward.

The second driver of long-term growth for Derby Week is our broadcast rates. As I discussed on our last earnings call, our NBC deal will deliver a $10 million increase in adjusted EBITDA for 2026. We also announced that NBC will, for the first time, broadcast the Kentucky Oaks race in 2026 during prime time on Friday night, May 1. We believe this will amplify awareness, engagement and wagering for both the Kentucky Oaks race and for the Kentucky Derby, the next day on Saturday, May 2.

The third driver of long-term growth is wagering. We continue to attract the best horses from around the world and are benefiting from the Derby's expanding cultural relevance, both domestically and internationally. We believe the increasing availability of online sports wagering across the United States is very much a positive development for wagering on the Kentucky Derby and races across Derby Week. The huge customer base delivered by the online platforms gives us the opportunity to reach more potential bettors and fans than ever before.

Also of note, our TwinSpires.com platform has continued to post strong growth in unique users during this period of rapid sports wagering expansion. And these players are remaining active and engaged long after the Derby.

Internationally, we recently announced the expansion of the European and Middle Eastern road to the Kentucky Derby by adding 3 new points races in Dubai and Saudi Arabia. There are now 10 races across 5 countries that comprise this series, allowing for up to 2 horses to qualify for the Kentucky Derby. This strengthens the quality and intrigue of the international pathway to the Derby and extends our brand further into 2 of the sport's most dynamic and high-profile markets with Dubai and Saudi Arabia. We are very excited to deepen our engagement with owners, trainers, sponsors and fans across these regions which we believe will generate long-term benefits for Churchill Downs Racetrack and enhance the global reach of the Kentucky Derby.

The fourth driver is sponsorships and licensing. Sponsors are increasingly recognizing the value of our expanding national and global footprint, driven by growth in on-site attendance, television and digital audiences, social media engagement and other strategic initiatives. The heightened visibility is attracting interest from some of the most well-respected brands, and we remain focused on broadening and strengthening our sponsorship portfolio in the years ahead. And finally, the fifth driver is selective renovations and expansions through capital investment.

As discussed on our last earnings call, we are on track to complete the renovations of 2 of our most prestigious and exclusive areas, the Finish Line Suites and The Mansion for the 2026 Kentucky Derby. We announced last evening that we are planning to invest $280 million to $300 million to build a new structure called Victory Run, just past the finish line between the Sky Terrace and the First Turn section, an area we refer to internally as the gap in the smile.

Victory Run will be a fantastic location and will offer tremendous views of the horses and the pageantry of the event. This new venue will replace existing uncovered ground-level box seats in dated dining areas with new premium hospitality offerings, including private suites and a combination of indoor and outdoor dining and covered box seats. Construction will begin following the 2026 Kentucky Derby with Victory Run completed in time for the 2028 Derby.

During the 2027 Derby, Derby 153, we plan to offer an interim upgraded seating experience in this area, featuring temporary covered stadium seating and enhanced amenities to ensure guests enjoy a premium experience even during the year of partially completed construction.

We remain committed to strategically investing in our flagship asset over the long-term to enhance the guest experience during Derby Week and to broaden our appeal to new audiences. These investments have delivered and will continue to deliver adjusted EBITDA growth with outstanding returns for our investors for years to come. Churchill Downs Racetrack in the Kentucky Derby remains the crown jewel of our company. These 5 growth catalysts provide a strong foundation for a vibrant and successful future for the Kentucky Derby and our company.

Next, turning to our HRM progress. First in Kentucky. We are on track to open our eighth HRM entertainment venue in Calvert City during the first quarter of 2026, on time and on budget. This will be an important addition to our portfolio of entertainment properties in the Commonwealth. With a population of 300,000 people within a 60-mile drive, our Calvert City site is conveniently located near the intersection of 2 interstates, providing easy access for customers from several surrounding cities in Southwestern Kentucky.

This venue will be branded Marshall Yards Racing and Gaming inspired by the railroad industry that shape the surrounding communities. Marshall Yards will feature 250 HRMs and a music stage that will host a wide variety of live entertainment attracting customers to the special property.

Turning to Virginia. As expected, the rows continued to show great progress during the third quarter. Gross gaming revenues grew meaningfully, and we are rapidly building our customer database. We were also pleased to see continued growth in weekday gaming revenue, driven by increased visitation frequency through our data-driven marketing. As we approach the 1-year anniversary of the opening we are making excellent progress in laying the foundation for long-term growth at The Rose.

In Central Virginia, we completed the expansion project at our Richmond HRM venue. We renovated an unused space to expand our gaming floor in May of this year and completed the remaining phase of this project in August, which added 450 incremental HRMs to the property. We also opened the Roseshire Gaming Parlor in Henrico County on September 29, ahead of schedule and below budget. The subscale entertainment venue features 175 games and other gaming-related amenities. It's off to a fantastic start. We currently have 4,875 HRMs deployed in Virginia.

Virginia has proven to be a great investment and business environment for us. As the exclusive operator of Thoroughbred racing and HRMs, we are building strong relationships with key constituents in both the horse racing and agricultural industries. We will continue to pursue opportunities to expand our footprint and grow the number of HRMs in this dynamic market.

Turning to New Hampshire. We completed the acquisition of a 90% interest in the Casino Salem project located at the Mall at Rockingham Park and Salem, New Hampshire, near the Massachusetts border at Exit 2 on Interstate 93. This is a highly attractive market with approximately 800,000 adults within a 20-mile radius and over 4.9 million people in the broader Boston MSA. More than 100,000 vehicles pass the property daily on I-93.

Currently, we are operating a temporary facility with 100 HRMs and 13 table games. Design work for the permanent venue is nearly complete, and we expect the facility to have approximately 900 HRMs, 30 table games, 3 food and beverage venues, a signature center bar and a large live entertainment venue. We will seek local permits and approvals for the final design, after which construction of the permanent venue will begin. We will provide more details on timing on our next earnings call, but expect to open the facility in 2027. We plan to invest approximately $180 million to $200 million to develop the state-of-the-art gaming and entertainment destination.

In the near term, we anticipate continuing to operate our Chaser’'s Poker Room in Salem and we have retained the rights to the associated HRM license. We will evaluate and pursue viable alternative uses for the second HRM license in New Hampshire in the future.

Turning to Exacta. Our Exacta business has grown through the expansion of our HRM operations in Kentucky and Virginia as well as through our third-party relationships in Kentucky, New Hampshire and Wyoming. Exacta technology is supporting our temporary facility in Salem, New Hampshire and will be utilized in the permanent Salem casino facility when it opens. We anticipate that a new third-party HRM property in Wichita, Kansas will open in December this year with a significant portion of the gaming floor utilizing our technology. We are excited to support the expansion of HRMs into this new market.

We have also made excellent progress towards gaining approval to deploy HRM-based electronic cable games. We are working to gain the necessary approvals from appropriate state authorities and expect to have more to share in the near-term. HRMs and the related Exacta technology represent a high-growth, high-margin investment that delivers strong returns for our shareholders. We will continue to focus on developing these businesses.

In summary, third quarter was very strong for us with record financial results. We have a portfolio of unique and high-performing assets that collectively provide multiple catalysts for growth and free cash flow generation for years to come. We believe that Kentucky Derby will deliver outstanding growth in 2026 and beyond, as well our recent investments in HRM properties and the related Exacta technology.

We will also continue to identify and execute high-quality growth initiatives. Our strategic decisions, disciplined capital allocation, strong balance sheet and diversified portfolio positions us to drive sustainable long-term growth in adjusted EBITDA and free cash flow. We remain focused on delivering superior returns for our shareholders.

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 into our financial results and then provide an update on capital management. First, regarding third quarter results. As Bill shared, we delivered record net revenue and record adjusted EBITDA for the third quarter. Our Live and Historical Racing segment had record net revenue and record adjusted EBITDA for the third quarter. This segment grew revenue by 21% and grew adjusted EBITDA by 25% compared to the prior year quarter. This is the 21st consecutive quarter of record growth in revenue and adjusted EBITDA compared to the prior year quarter for this segment.

All of our Kentucky HRM properties contributed to this strong performance. our Louisville and Northern Kentucky teams contributed double-digit growth in adjusted EBITDA compared to the prior year quarter. This double-digit growth was a result of strong execution on the top line as well as from a cost perspective. We are building a strong customer base for Owensboro, Kentucky, HRM venue in Western Kentucky, and our team in Southwestern Kentucky is continuing to successfully penetrate the Nashville market. This will be the fifth consecutive year of strong growth for our Oak Grove HRM venue.

Our margins for our Kentucky HRM properties were very strong for the third quarter, collectively increasing over 3 points compared to the prior year quarter from the continued growth and optimization of these properties.

In Virginia, The Rose had a strong quarter with GGR per unit per day increasing every month of the third quarter when adjusted for calendar differences between the months. Our HRM venue -- our Richmond HRM venue in Central Virginia has completed the expansion of the property, adding 450 incremental HRMs. The new HRMs and gaming floor expansion has been well received by our guests. We are also very pleased with the initial results from our new Henrico County venue.

Our Southern and Western Virginia results reflect the comparison to a strong third quarter in 2024 as well as the impact of increased competition for our Vinton and Hampton properties.

Overall, we generated a combined 51% margin during the quarter for our same-store Virginia HRM properties. This margin is best in class, and we believe these margins are sustainable given the continued scaling of our Northern and Central Virginia properties.

Turning to our Wagering Services & Solutions segment. This segment delivered record third quarter adjusted EBITDA, driven by the continued growth of our Exacta business. Exacta benefits from the growth of our Kentucky and Virginia HRM properties as well as our third-party customers.

And last, regarding our gaming segment, our wholly-owned regional gaming properties performed relatively well in the third quarter. Excluding the impact of removing HRMs from our Louisiana operations, our adjusted EBITDA for our wholly owned gaming properties increased over $3 million and margins were up 1.1 points compared to the prior year quarter. These increases result of both top line growth and effective cost management.

Regional gaming consumer behavior was relatively consistent on a sequential basis. We saw continued strength from our rated players with increased visitation and spend per trip from the highest end rated players in our database. We also saw unrated player trends improved compared to the prior year quarter and on a sequential basis.

Turning to capital management. We generated $166 million or $2.34 per share of free cash flow in the third quarter, primarily from the strong cash flow generated from our businesses. Free cash flow per share is up 13% from the prior year quarter as we continue to realize the benefit of recent capital investments and the impact of share repurchases. Our free cash flow yield based on our trailing 12 months results is approximately 10%. We spent $53 million of maintenance capital through the first 9 months of the year.

We now expect to spend $75 million to $85 million on maintenance capital in 2025. We spent $172 million in project capital through the first 9 months of the year. We now expect to spend $200 million to $240 million on project capital in 2025. For 2026, we are now projecting our project capital to be between $160 million and $200 million. This reflects the 2026 expected project capital for The Mansion, Finish Line Suites and Victory Run projects for Churchill Downs Racetrack and the Casino Salem project in New Hampshire that Bill discussed.

Turning to share repurchases. We repurchased over $50 million of our stock in the third quarter under our share repurchase program. Regarding our dividend, our Board of Directors approved a 7% increase in our dividend, which will be paid out on January 6, 2026 to shareholders of record on December 5, 2025. This is the 15th consecutive year of increased dividends per share for our company.

As a reminder, because of the federal tax bill that was signed on July 4, we will see an improvement in our free cash flow from favorable cash taxes. The new tax provisions include making the 21% business tax rate and 100% bonus depreciation rule permanent. The federal tax bill also reinstated a 30% of EBITDA-based interest deduction limitation. The additional interest deductions, combined with 100% bonus depreciation will reduce our cash taxes and increase our free cash flow this year and in future years. We estimate that the impact of lower cash tax payments will be $50 million to $60 million in both 2025 and 2026.

At the end of third quarter, our bank covenant net leverage was 4.1x. We expect our bank covenant leverage to remain at this level at the end of the year, and then we'll be below 4x in 2026. We are proud of the record performance our team achieved in the third quarter. We are well positioned for sustainable long-term growth, supported by our unique portfolio of high-performing assets, disciplined capital management and our strong balance sheet. We remain committed to creating long-term shareholder value.

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

Thank you, Marcia. Andrew, I think we're ready to take questions.

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

Congrats on the quarter and the announcement of Victory Run. Can you talk more about your ROI targets for Victory Run, how and when you think you'll hit them? And maybe if there are any lessons learned you can apply from the Starting Gate Pavilion introduction at Derby 151?

Sure, happy to do that. Barry, so we target a 20% unlevered IRR. That's what we shoot for. We shoot for that, really focused on year 3. It takes time in this business to introduce the new asset, get trial and then get word of mouth. So it's a 3-year window that we focus on.

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

I appreciate it. I wanted to ask about ETGs -- from not putting words in anybody's mouth, from my own work, my sense is that Kentucky might be closer in than some of the other markets that you have. But generally speaking, have you done any sort of penciling, Marcia and team, around what the prospective opportunity could be, whether it's in Kentucky or in any of the other markets in terms of lift, maybe based on learnings from other markets that have gone into ETGs before and after?

Thanks, David. Good morning. So ETGs, electronic table games, that's an important frontier for us with HRMs, our facilities across Virginia, Kentucky, New Hampshire, they don't have the benefit of offering table games, which is something, of course, a class of customers really want. So electronic table games in states like Virginia and Kentucky represents an important opportunity for us, and it's a technology journey and it's also a regulatory journey. And it's one we have been focused on for a while.

So I don't have any news to announce today, and I hinted at that in our comments, but it's a material focus. It's something we think can be really important and it levels us up in terms of having a comparable suite of offerings for customers compared to traditional Class III facilities. So I can't give you and wouldn't -- can't responsibly give you predictions on what it will do, and it also depends on the regulatory framework that's finally approved. But I can assure you that we take it extremely seriously and think it's an important opportunity for us and we're going to focus on it until we can get it done.

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

Congrats on the announcement on Victory Run. I wanted to ask about just capital allocation. So year-to-date, and including the dividend, it looks like about $400 million will be spent on share repo and the dividend. So with the updated CapEx for the next couple of years, Marcia and team, how are you thinking about leverage and the balance between share repurchase and the money that will be spent on the projects?

Thanks, Chad. As you know, we're very disciplined in our capital management. We have made a commitment to have our leverage come below 4x next year, and we will execute that through that. That being said, we are very thoughtful about -- and strategic about buying shares back when it's appropriate. And we will continue to balance. We have a very good forecasting model that allows us to balance our capital investments with the dividend that we grow at 7% per year, along with other share repurchases throughout the year.

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

The brick-and-mortar property portfolio is wholly owned across both the live and historical and gaming segments. Outside of not having to pay rent, what are some of the incremental mid- to long-term benefits of owning the properties outright? And then do you think the market is giving you enough credit for the full ownership piece right now?

Thanks for the question, Dan. So our philosophy for our gaming assets has been to own the real estate. Other companies have chosen other philosophies and they can explain their philosophies. For us, we've been focused on growing these businesses, stabilizing these businesses and running them as best as we can. So owning your own real estate gives you a sense of stability and a sense of predictability that's made sense for our company. But the philosophy is around why different companies do it the way they do it is up for the other companies to explain.

For us, I don't think we get credit for it fully in our stock. It's been occasionally a source of discussion on these calls and a source of discussion with other investors. But fundamentally, we structured a very stable, consistently performing well-executed strategy around regional gaming, in particular, and hopefully, the market recognizes that because our track record is clear and our future is also fairly predictable and clear as well.

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

Bill, Marcia, I was wondering kind of broad strokes, if you kind of could just touch on the M&A environment here. I mean, obviously, we've seen some transactions lately. You guys obviously participated with Casino Salem. I mean, as you kind of look broadly and think about kind of inbounds and outbounds, how would you describe the kind of level of activity or interest? It just seems like there's been a little bit of a pick up externally.

Yes. Certainly, we've seen that pick up. There have been a couple of announcements in the brick-and-mortar space recently over the last month or so and even over the last week. And that's always encouraging. Now those were -- those are opco/propcos as I think about the ones that come to mind and we're, of course, holdcos. So I think it's nice to see some clarity in the market. So the investor community and the markets in general get a sense of the value of properties, and we watch those markets closely.

And as a company in the space, you've seen over the long-term, we're both an opportunistic acquirer, and we're also a seller when opportunities afford themselves. So we're always a flexible participant in the market, and we like to pay attention to the trends and the activities we see. So everything is relevant and interesting to us. But I would say, in general, you are seeing a pickup in activity over the very recent term.

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

Maybe just a follow-up there. Obviously, in New Hampshire, you acquired 90% interest in Salem. Talk to us about the M&A environment, specifically in this region. Is this an area we could see more activity? Or was this more of a one-off for some reason?

Well, talking specifically about New Hampshire, we entered New Hampshire originally through our Chasers' license in Salem. So we believe very strongly in that market. And the second license was created, so the parties came together and that was an opportunity that just made a lot of sense for us based on the work and our understanding of that market. Generally, in the state of New Hampshire, I like the model in New Hampshire with HRMs, and I certainly like -- I like the demographics there.

But there's not a philosophy per se for that particular region. We look at every region. We look at demographics. We look at pricing, we look at the technology that at play and we make a determination based on that. But New Hampshire is a story of us investing in the Salem market and then seeing an opportunity to double down on a market that we really believe is going to be a long-term positive development for us.

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

I wanted to ask a bit more of a high-level strategic question on the Derby. Bill, just as you look at the track assets built up currently. I'm curious just to get your updated thoughts on what inning you think you're in with respect to some of these, call it, more substantial projects such as the First Turn or the Victory Run, and that's a corollary to that. Do you think the current product is diversified enough where it covers the full consumer life cycle? Or is there still some opportunity left to bridge jumps and ticket price, such as going from infield to premium seat and things like that?

Well, thanks for that question, Jeff. I like the baseball analogy. It's World Series time, so that's a very timely analogy. So in that theme, what inning are we in? When it comes -- the Derby is a very old event. It's been around for 151 years, but I think we're in the third inning. I think there's so much opportunity with that, it's a very dynamic evolving event as we develop it. And as the country changes and as we see things moving towards experiential customer spend, so I think the future is very bright for the Derby and there's a lot more to come.

I think it's important to have a breadth of offering for the Derby. And a lot of that is still yet to come. When we look at Victory Run, that's a very, very, very attractive part of the track. It's just past the finish line. It has a great view of the stretch as the horse is sort of thunder towards the finish line. And it was a very -- it has seats there, but they're tired -- it's a tired old section that hasn't seen capital investment in a long time. So it was a perfect opportunity to really upgrade that and meet the modern expectations of our consumers, and we get that feedback from them every single year on what they're looking for.

So they want more suites. They want more covered boxes. They want higher amenities. That's what they're looking for, and this is an area where we can do that. And there are other areas around the track where that also is in the cards for the future. So I think you'll see us be active on a small-to-medium scale constantly, but the next big project is the one we talked about today, which is Victory Run, and we need to get that done and get that digested before we talk about some of the other big projects that come next.

I would say about Victory Run, it increases the capacity of the track, seating capacity by about 2%. It's a 20% increase in that section, and that's a really important section. But we're always very careful about layering in capacity because it's not really about the number of seats. It's about the quality of experience and the segmentation of the experiences that we offer. And so this fits in with a plan and a philosophy that you've seen us execute over time and it's the right next step.

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

So I wanted to ask about The Rose. Obviously, a nice ramp you're seeing there. I think you're now within your long-term win per unit per day target. And so I guess the question would be how to think about the margin ramp from here and into next year. And I apologize for the near-term question, but any sort of concerns around the sort of government shutdown that's going on in the DC and the like, that would be helpful, too, as well.

Brandt, thanks for the question. Yes. We're thrilled with the progression of The Rose. We still think we have a long way to go. And we think as we progress and as our win per unit goes up, you should see improving margins. Right now, we're still heavily investing in marketing as we try to drive awareness in a very big, large complex MSA. And you mentioned also what's going on in that market. We don't really see or feel in a way that we can tell that the impact of some of the government shutdown discussions or whatnot. It's such a huge area. It's 6.5 million people, and we've not even been open in a year. So we're just growing through it.

So I think it's such a huge market with great demographics, both from the population level and from the income level that we're just in the process of growing into our size. So some of the noise going on is just not something that we can discern as we currently grow. So yes, we're really happy with how that's progressing. We're really happy with the quarter-to-quarter growth. And as our team settles into the pace, we think there's more things -- good things to come there. And it would be our expectation that you'll continue to see improving performance on margins and things like that as we drive better awareness and better performance per machine.

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

Just wondering if you guys have thought at all about or could give us some of your kind of emerging thoughts on the whole emerging landscape of prediction markets. This is a fairly disruptive force that's happening out there in the online sphere. And I'm thinking about the potential implications specifically for the Derby, you've obviously, through the pari-mutuel approach and then through the content control have generally had very strong sort of ability to control what's going out there in the betting sphere for the Derby.

But this kind of new world seems to do particularly well when we're talking about like really large tentpole events and the Derby, in our eyes from a sporting perspective is definitely one of those. So just kind of wanted to get your thoughts. I know it's an early subject, but if you had any -- and have any of those operators potentially approached you about sponsorship or anything else?

Sure. Thanks, Shaun. So let me start by saying that wagering on horse racing in the United States is actually governed under an umbrella federal law called the Interstate Horseracing Act. That's very different than sports wagering that you see across all of the states, which is a state-by-state sort of balkanized state law construct. So our construct is fundamentally different than all the other sports wagering activity you see in the United States. We are governed by a specific dedicated federal law about how wagering works on horse racing. So that makes us quite different.

And the requirements under that law are very clear about what it takes in order to take a wager on a horse race, you have to have a contract with the content provider. That's us. You have to have a contract with our horsemen, et cetera. So our philosophy on the prediction markets are, we will approach them, we will explain to them the legal construct under which activity on our sport happens -- wagering activity on our sport happens.

We'll explain that both the civil and criminal elements of the Interstate Horse Racing Act and why compliance with it is so clear. And we'll take it from there. We do not have a deal with any prediction markets -- predictive market companies to take wagers on our product. We are not in discussions to do that at this time, but we do plan on approaching them and explaining to them the legal construct under which wagering happens on our product. This is not a question like some of these other sports between state law and federal regulations.

We have federal law that governs how we operate. And certainly, to the extent people act counter to having a deal with us and act counter to the Interstate Horseracing Act will pursue all our rights and remedies under the Interstate Horseracing Act. So for us, I think we're different than the other sports. I think we're different than the other players in the online wagering game. And that's a serious subject. It's one we take very seriously and it's one that we've talked a lot. And for us, it's always a matter of communication and making sure that the players out there on the field understand how this sport works so they can contrast it and understand it compared to the others.

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

Bill, Marcia. A question on Virginia, if I could. Sorry to repeat the question as maybe I have in the past, but I wanted to ask again really on the process of shutting down illegal machines kind of where that is, Bill, you've described it as a bit of a whack-a-mole process. Has that changed? And do you think it's affecting some of your assets within Virginia, at least in a modestly negative manner today. Just trying to understand essentially the opportunity and the tailwind of closing down those machines over time and how strong it is, et cetera?

Sure, Joe. Happy to take that question. And we haven't talked about that yet today. So I almost used the term gray games, but these aren't gray games. These games are illegal. The legislature has spoken, and the court has spoken, but there are constant issues of enforcement and also constant variations of games that manufacturers try to introduce to try to distinguish themselves from the very clear law of how this works. So it is a bit of a whack-a-mole. There's been a lot of progress in the state. This isn't binary.

It isn't black or white in the sense that there is always going to be an element of enforcement necessary because of the shenanigans some of these manufacturers try to engage in to introduce machines. So generally, there has been pretty strong enforcement. It's very clear from the Attorney General. It's very clear from the legislature. But there's always enforcement issues that will happen, especially when manufacturers may try to muddy the water with games that are different in some way. So I think it's -- I think that's a process that goes on. It's sort of a slow burn indefinitely.

And yes, there's still great games out there. We don't think they're really material at this point. The enforcement has been pretty good. But they are out there, and it's -- it requires constant vigilance and constant communication with law enforcement and constant and willingness to engage with the courts. It's just part of the environment in that state and in others. So we're going to grow through that. We are growing through that. We are building our business through that and that's just part of that process that we keep our eye on that and keep pushing on that. But I would say over the most current quarter, it hasn't been a big driver or a big concern. We feel like we have it mostly in a good place.

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

Thanks for your time this morning, everybody, for our investors. Thank you for your trust in us. We won't let you down. We're proud of the team. We think we had a strong quarter, and we think we have more good things to come. So we'll keep doing what we're doing. And again, thanks for your confidence and trust in us. We look forward to talking to you next year, next -- actually will be next year, but next quarter as well.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.