Churchill Downs Incorporated (CHDN) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. And welcome to the Churchill Downs Incorporated 2021 first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I will now like to introduce your host for today's conference, Mr. Nick Zangari, Vice President, Treasury and Investor Relations.
Nick Zangari: Thank you Olivia. Good morning and welcome to our first quarter 2021 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2021 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 Investor section.
Bill Carstanjen: Thanks Nick. Good morning everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer, Marcia Dall, our Chief Financial Officer and Brad Blackwell, our General Counsel. I will comment on our first quarter performance, our capital investment plans and the upcoming Kentucky Derby. After my comments, Marcia will make her remarks. And then we will open the call for questions. As most of you have seen, we issued an 8-K earlier this week in which we announced changes to our segments for external financial reporting purposes to reflect the evolution and growth of our company and to provide further clarity for investors to better understand our operating performance. Our continued growth and evolving plans with respect to historical racing machine developments warrant these changes. Turning your attention to the first quarter. We have completed our preparations for the 2021 Kentucky Derby, which we will conduct with fans in attendance, along with appropriate health and safety protocols. I will provide more specifics on these plans in a few minutes. We worked with industry participants and our government representatives across Kentucky to pass new legislation clarifying the legality of historical racing machines in the Commonwealth paving the way for the further development and growth of our current venues and the green light to move forward on potential additional projects. We repurchased one million shares of our stock. We placed $500 million of debt at very attractive terms. And we delivered double digit revenue and doubled our adjusted EBITDA in the first quarter compared to the prior year. In light of the COVID-19 impact that began in March of last year, we also compared our performance in the first quarter of this year to the same period in 2019. Our businesses also delivered double digit revenue growth and double digit adjusted EBITDA growth for the first quarter of 2021 compared to the first quarter of 2019.
Marcia Dall: Thanks Bill and good morning everyone. As Bill mentioned, I will provide some thoughts on our new segment reporting and our first quarter financial results. Then I will provide an update on our capital management plans. We field a Form 8-K Tuesday afternoon in which we made two changes to our operating segments for the first quarter 2021 and going forward. The first change we made was to rename our Churchill Downs segment to the Live and Historical Racing segment. This segment represents racetracks with live racing and historical racing entertainment venues. This operating segment will now include our Churchill Downs racetrack and its HRM facility, Derby City gaming, our Oak Grove racing, gaming and hotel venue, which opened in September 2020, our Turfway Park racing and gaming venue where we are currently building the new HRM facility that Bill discussed and our Newport racing and gaming venue, which opened in October 2020 and is an annex of Turfway Park. The financial results for Oak Grove, Turfway Park and Newport were previously included in all other. The second change we made was to rename our online wagering segment as the TwinSpires segment. This is consistent with our branding for horse racing and for sports and online casino wagering. We are also now including our retail sports betting results from our wholly-owned casinos and our sports and casino business within the TwinSpires segment. Our retail sports betting results at our wholly-owned casinos were previously included in our gaming segment. This change provides a clear view of the total profitability of our sports and online casino business. So turning to our financial results. We are very pleased with our first quarter financial results. Our first quarter results are a direct reflection of our team's relentless fortitude during the 2020 pandemic to position our company for significant organic growth, coming out of the pandemic. Our three business segments combined delivered double digit revenue growth and doubled our adjusted EBITDA in first quarter compared to the prior year quarter. As Bill shared, we also had double digit revenue growth and double digit adjusted EBITDA growth for the first quarter compared to the first quarter of 2019. Our live and historical racing segment generated $65 million of net revenue in the first quarter, which was more than double the prior year quarter and generated $18 million of adjusted EBITDA compared to $1 million in the prior year quarter. Churchill Downs racetrack is relatively quiet in the first quarter of each year with no live racing days. Therefore, the nearly $36 million of growth in net revenue and the $17 million of growth in adjusted EBITDA for the quarter was from the opening of our Oak Grove and Newport properties and continued strong growth from Derby City gaming. We are very pleased with the performance of our Oak Grove and Newport properties since their opening in late 2020. Derby City gaming's performance continues to exceed our expectations. The property benefited from the completion of a second outdoor gaming patio which added 225 HRMs in September 2020 and increased operating efficiencies. Our primary competitor also closed for a few days during the quarter due to flooding, which helped bring additional traffic to Derby City gaming. The TwinSpires segment generated $100 million of net revenue, up $31 million from the prior year quarter and generated $22.5 million of adjusted EBITDA, up $6.5 million from the prior year quarter. Our TwinSpires horse racing business was $26 million of net revenue increase and generated an incremental $9.9 million of adjusted EBITDA compared to the prior year quarter. Our horse racing business benefited from a 34% increase in handle compared to the prior year quarter, which in part reflects the impact of the continued shift from brick-and-mortar wagering to online wagering. Our sports and online casino net revenues increased nearly $5 million during the first quarter and our operating license business increased $3.4 million from the prior year quarter as a result of the increased marketing and promotional activities related to our launch in Michigan and Tennessee. And last, our gaming segment's net revenue from only our wholly-owned casinos increased $6.6 million or 4% from the prior year quarter. Our gaming segment's adjusted EBITDA which includes our wholly-owned casinos and equity investments in Rivers and MVG increased $34.5 million or 72%. Regarding our wholly-owned casinos, it's important to note that the very closure of our brick-and-mortar properties beginning in mid-March of last year due to COVID-19 did impact our prior year quarter comparison. In January 2021, Presque Isle and Nemacolin were closed for a brief period of time. All of the gaming properties were operating under state and local restrictions due to COVID-19 during the first quarter. We have seen a reduction in the restrictions at almost all of our properties. However, there are certain restrictions in place that are still there that limit our full operating potential for our gaming properties. The margin for our wholly-owned gaming properties excluding Presque Isle and Nemacolin increased 15 points compared to the first quarter of 2020. The margin improvement on the same basis for first quarter 2021 compared to the first quarter of 2019 was over seven points. Regarding our equity investments in Rivers Casino Des Plaines and MVG, both properties are open and also continue to operate under certain state and local restrictions. As Bill mentioned, Rivers was closed for a few in early January of this year. These two properties generated $10 million of incremental adjusted EBITDA in the first quarter compared to the prior year quarter and also distributed a combined $22 million of cash to Churchill in the first quarter. Turning to capital management. In the first quarter 2021, we spent $5 million on maintenance capital that were primarily related to capitalized improvements to our TwinSpires horse racing technology platform and mandatory items at our gaming properties and Churchill Downs racetrack. For full year 2021, we continue to anticipate spending $50 million to $60 million of maintenance capital, of which about half is targeted on our gaming properties primarily driven by our deferral of spending in 2021. We also anticipate spending the majority of the remainder on replacing the turf course at Churchill Downs racetrack and on continued improvements to our TwinSpires horse racing technology platform. Regarding project capital, for the first quarter 2021, we spent $8 million on project capital, of which more than half was spent on the Oak Grove facility. The balance of the project capital was spent at Churchill Downs racetrack and site preparation at Turfway Park. For full year 2021, we continue to anticipate spending $150 million to $160 million on project capital, of which approximately half is planned for the buildout of the Turfway Park HRM facility and the final completion of a few carryover projects related to Oak Grove and Newport, as well as some smaller capital projects at our gaming facilities. The balance of the 2021 project capital is for the capital expansion plans at Churchill Downs racetrack that Bill discussed. Now regarding our debt and leverage positions. On February 1, we repurchased one million shares of our stock from an affiliate of The Duchossois Group. We repurchased the shares for $193.94 per share with an aggregate purchase price of $193.9 million. We funded the repurchase with our revolver. We believe that repurchasing large blocks of our shares at attractive prices is beneficial to our long term shareholders and will be accretive to our EPS. In March, we issued a new $300 million Term Loan B and $200 million of senior unsecured notes at very attractive pricing which we used to pay off our revolver and fund the settlement payment for the Big Fish related legal cases on March 25. We have approximately $148 million of excess cash on our balance sheet that we will use for project capital and other corporate needs. At the end of March 2021, we had net leverage to 5.3 times, reflecting our increasing debt and the lower level of 2020 adjusted EBITDA as a result of the pandemic. We were compliant with both of our revolver covenants at the end of the first quarter, even though we have a waiver of these covenants through the second quarter of 2021 reporting period. We anticipate that our net leverage will decrease in second quarter and over the balance of the year and into 2022 as we benefit from the running of the Derby on its traditional date, the first Saturday of May, the continued lifting of state and local restrictions on our gaming and HRM properties and as we accelerate the growth from our newer HRM properties. I, like Bill, am excited for the 147th running of the Kentucky Oaks and Derby next week. It is truly the most special and magical sporting entertainment event in the world. With that, I will turn the call back over to Bill so that he can open the call for questions. Bill?
Bill Carstanjen: Thanks Marcia. Okay, everybody, we are ready to take your questions, if you have any for us.
Operator: . Our first question coming from the line of Brett Andress with KeyBanc Capital. Your line is open.
Brett Andress: Good morning. Thanks for taking my questions. Starting off on the Derby, obviously going to be unique year again and maybe normally we would debate some of the finer details like weather, field size, things like that. But just how much revenue visibility around the event do you have this year maybe compared to a normal year? And then the second part of the question is, industry handle obviously continues to be strong, in-person wagering has returned to the Derby. Just how do you think about some of the puts and takes around that as it relates to TwinSpires?
Bill Carstanjen: Sure. So I will take your question. There's a couple of questions within that. I will take the first one first, revenue visibility. Our revenue visibility is really excellent because we know exactly how many seats we are able to sell in different areas. We understand our sponsorship numbers. And we have a pretty good feel for wagering, although there may be some variability on that just because the circumstances are a little bit different this year like they were last year. So generally, as we go into the Derby, there is fair amount of confidence and understanding of what we should be able to expect. And we have largely telegraphed some of that in my earnings comments and other forms so that people know primarily that we are not able to have the full contingent of fans that we normally would have because of COVID. With respect to the puts and takes on wagering, the country has opened back up for fans. There are limitations in different jurisdictions. So as people will return to brick-and-mortar facilities, that's one important lave that people wager. And while they couldn't do that as much last year, we weren't necessarily happy about that because not everybody is going to migrate to online. So we are glad that the facilities are back open generally across the country, even though there are restrictions within those facilities. And of course, channel migrations to online has been a big theme for us over the last year. So that's an important component for us and an important emphasis for us as well. So we are optimistic about that.
Brett Andress: Got it. Okay. And then the second, listening to some of your sports betting and online gaming peers, there seems to be a desire, I think, for some of them to get into the horse wagering business. So as we begin to think about the possibility of new entrants, it would be helpful for me if you could may be just talk through the competitive moats that you see around the TwinSpires business and what new entrants could even mean for the industry.
Bill Carstanjen: Well, generally, we like the idea of more fan participation in wagering on horse racing. Generally, we think that's a good thing for our game, for our company overall and for TwinSpires. It's a great gambling game. But it's different than other forms of sports wagering from a couple of respects. First, from a legal perspective, that has a separate legal regime. It has a federal law that sort of governs how horse racing wagering can happen across state lines and it gives the content producer clear intellectual property rights with respect to any wagering activity on the content providers' content. So deals are required with the horse racing providers, the tracks and their horsemen in order to have or take wagers on their content. So it's a different legal construct and that's an important difference or moat to the rolling out of this product more probably. Secondly, wagering on horse racing is parimutuelly based. It's not fixed odds based. So the technology is different. Generally, the platforms you see out there across sports wagering providers, they are not quite set up at this time to take parimutuel wagering. That's a technology challenge that's certainly surmountable but it hasn't been undertaken yet. So there are some tweaks and differences about parimutuel wagering on horse racing that are out there that over time might be surmounted by some who are willing to do the work and cut the necessary deals in order to do so. And we are never afraid of that. We will look to find opportunities within that to better monetize our content and further the economics of TwinSpires as well.
Brett Andress: All right. And then in the spirit of things going back to normal here, can we get your pick for the Derby?
Bill Carstanjen: No. I never do that because that is incredibly unfair to these poor horse owners out there who would then be cursed with me having picked them as my favorite. I wouldn't do that to people. It wouldn't help anybody. It wouldn't help that poor horse owner. And it would really screw over you betters out there who would maybe listen to my advice. So I am the last person that can give that advice. But it's a really competitive field this year. So it's actually pretty exciting for those that know the game. This is going a lot of fun this years.
Brett Andress: I was just looking for an edge there. All right. Thanks for taking my questions.
Bill Carstanjen: Go to TwinSpires. They have got some tools that can help you out. Thank you. Thanks for those questions.
Operator: Our next question coming from the line of Finn Barrett with Bank of America. Your line is now open.
Finn Barrett: Thanks and good morning guys. Congrats on another great quarter. Starting off, I just want to ask a little bit about the return of customers you have seen on the regional casino side and also at the HRM properties in Kentucky? It would be great to just get some color around customer behavior and demographics. Are these rated players you have seen before? Are you seeing any return of the older demographic? It just would be great a sense of what's driving demand there. Thanks.
Bill Carstanjen: So I am going to generalize. Generally, there has been more unrated play than traditionally we have seen. And generally, our older players, the older demographics clearly demonstrated in the data are the most reluctant to return. But they are starting to return as we believe the vaccination rollout across the country moves along.
Finn Barrett: Great. That's very helpful. And I guess thinking about the Derby coming up this week, can you help us think about some of the margin impacts of the restrictions that you are facing this year and how we should expect to actually flow through to P&L?
Bill Carstanjen: There are puts and takes when it comes to the margins with respect to Derby. We are doing more cleaning, et cetera but also food and beverage is packaged with the tickets. So I suggest that you not worry or focus much about margins. I think that's not a big driver in trying to predict this year how Derby will perform economically.
Finn Barrett: Great. Thank you. That's it for me. And definitely looking forward to the Derby getting back to normal in 2022.
Bill Carstanjen: Us too. Thanks Finn.
Operator: Our next question coming from the line of Joe Stauff with Susquehanna. Your line is open.
Joe Stauff: Okay. Thank you. Good morning. Good morning Bill. Good morning Marcia. First question on the HRMs. Derby City gaming, a record quarter despite the 60% fire code restriction. As you suggested, Bill, you are seeing more unrated players. Just trying to ask where you see, say, that incremental demand or any magnitude or measurement of it that you can give us? If the fire code restriction order be removed, meaning do you have certainly excess demand on the weekends, during weekdays? Any commentary you can give us, I would be curious.
Bill Carstanjen: I would talk about it a little bit more broadly than that. It's just the property that's not close to maturity yet with respect to customer awareness in our market, with respect to customer familiarity with the quality of the product and with respect to the evolution of the product itself. We are still working hard to introduce more product, more games, more manufacturers on the floor, more innovation. So generally, there are a lot of factors that are moving in the right direction. But I would start with the factor of, it's still new. It's not close to maturity. And that's a really good thing. If you look at the size of, say, the Louisville market and to take that market, we are also down there at Oak Grove pulling out of Nashville and up in at our Newport facility pulling out of the Northern Kentucky, Cincinnati region. But just looking at Louisville, we get a sense of the market based on what the activities are in the other side of the river. And that's all fair game for us to go after their economics and their customers and that we always drive confidence from knowing the historical size of the market by looking at their performance. But we think the market's even bigger than that, but that helps give a sense of what our targets are. So certainly we exist in competitive markets and we intend to the challenge competitors in our space, particularly those that have been around longer than us. So there are a lot of good factors. We have built greenfields before and this is a great place to be in the evolution of a greenfields because we know we got so much more to go. But we have got to prove it. So the noise around the pandemic and fire code restrictions and capacity constraints on weekends and whatnot, that's relevant, that's important but I view that as less significant than just generally where we are in the stage of that property.
Joe Stauff: Makes sense. And on Oak Grove, you do have regulatory clearance to have over 1,300 machines there. And as the other piece I wanted to ask is, how many of those machines, say, were available, given like the reopening cadence and obviously it's a new property that you have to market? But what is the right way to think about that just in terms of how many of those machines were available and/or deployed at that location?
Bill Carstanjen: Yes. So there are about 1,325 machines on the floor and somewhere around the high 900s are actually turned that's primarily driven by COVID-related restrictions and sort of proximity of machines to each other. So that's the current state of play on that facility floor. Now if you ask me about every single floor, I am not going to be able to answer that. So please don't ask me for every one of our floors. But that one, that's a facility that Bill Mudd and the team pay a lot of attention to because we are so focused on growing it. So I happen to know those numbers off the top of my head.
Joe Stauff: Yes. Okay. And then TwinSpires and as you deploy additional, say, menu options, right, new products SB and iGaming, I would imagine there is a hell of a lot of horse racing customers that you have in Tennessee. And I guess my question primarily is, within TwinSpires and say, your offering for it in Tennessee going forward and this applies obviously to other states, where are you in the development of a shared wallet? It seems naturally there could be a real weapon for cross-promotion, as you suggested maybe in and earlier answer, there obviously is some software complexity to try to pair the pari-mutuel and fix odds racing or fix odds betting, calculus together, but I am wondering where are you in that?
Bill Carstanjen: Yes. We know how to do it and it is a priority and it is something that we think is important. But it's not something we are addressing as a top priority right now. We have been focused on converting to GAN and Kambi and testing that technology, making sure that works. And that will be our priority for the near term, as I covered a bit in my script. As we get comfortable in making sure that that technology is robust and scalable and I am sure it will be and then as we test our marketing and other plans with respect to traditional sports wagering and online casino, as soon as we can get around to the common wallet and that kind of exercise, we will. But right now, we just have a lot to do. So it's not a circumstance where you can do everything at once. So that's how we prioritize.
Joe Stauff: Understood. Thanks very much.
Operator: Our next question coming from the line of David Katz with Jefferies. Your line is now open.
David Katz: Hi. Good morning everyone. Thanks for all the information. I wanted to just talk about Illinois in a broad sense. I know that there is a process underway with Arlington and I would love to get a sense for even a neighborhood of timing with respect to that. And then, there are other license processes that obviously started pre-COVID and whether they have suspended themselves indefinitely? Or what would you like to see come out of those, whether it's the Waukegan or downtown, please?
Bill Carstanjen: Sure David. Good to talk to you. So with respect to the Arlington Park land sale, preliminary bid date has been set. And as those bids come in, in the second quarter, we will evaluate them and figure out next steps. I think the ultimate conclusion of that process is something I can't responsibly predict for you because we will have to see the nature of the bids and if the property gets bidded, split up between multiple bidders or if it's a single bidder, et cetera. So there is a process. The process is underway. The preliminary indications are due in the second quarter and we will take it from there and all is good on that front. It's just this is what it takes to run a complex process to sell a big piece of land with a lot of value like that one. With respect opportunities on the gaming side in Illinois, my understanding in the Waukegan process, Bill Mudd and I were talking about this morning, I think that the RFP window has closed for bankers to submit a response to the Waukegan RFP request to be the banker to help the gaming board make their decision. I understand it's a six-month window from the time that banker is selected, whenever the banker is selected. So that's all I know on that process. That's not a prediction. That's just telling you what I know. That process has obviously taken longer than what we might have originally thought when we made our original bid. But we will have to see. And then with respect to other opportunities in the state, I don't have anything to report. We are monitoring like you are and having discussions where appropriate. But we are really interested to see what happens with respect to Downtown Chicago and we will pay attention to that to see if there is opportunities for that and whether there's opportunities to move the racetrack also in the state as well. But I don't have anything to report on that at this time, other than we work on it and think about it everyday.
David Katz: I appreciate that. And with respect to Kentucky, I know you made some commentary during your remarks and I believe I heard correctly that the notion of the all-suite hotel is being tabled for the time being. I just want to make sure that I heard that correctly. And I suppose why? And what is the vision for the Derby and how these properties might even interact with each other across Kentucky, right? I am sort of looking for a grand vision of Kentucky as a whole, if you can.
Bill Carstanjen: Yes. We will lay a more wholesome picture of a project at Churchill Downs racetrack and Derby City gaming at or before our next earnings call. We are still going through some of the pricing and some of the construction. But ultimately, if we back up and talk about what we had previously been proposing a large hotel-based project at the track, I don't think it comes as any surprise to people out there. There is a lot more risk in a project like that just because of the disruption of travel and moving around the country. So we want to be thoughtful and careful about that and always make smart decisions. So as we challenge, as we always do when we said that on these calls, we always challenge our assumptions. We always revisit and retest every assumption. We think there are just better projects for us to do that are higher return, lower risk, particularly in the current environment. So we reordered and reimagined what we want to do and segmented them, which always helps because we run the Derby every May 1. And so we always have to be ready to run the Derby. So we have segmented them into three different projects for the track. So I think I have to leave it at there. I can't give you a big all-encompassing vision because you will get that next time when we price that out and we can talk specifically on returns and costs associated with those returns. But I just ask that the investors be patient with us. Give us the benefit of the doubt. We have demonstrated we have been good at these investments. We have been thoughtful about these investments for the racetrack. And we have got some really exciting things. And back to a point I made in my prepared remarks that this pandemic obviously has been a really terrible thing and disruptive to all our families and all our communities that we participate in. But ironically, it gave us time to think and retest and rejigger some of the projects that we thought we should do and it's made us a better company. We will get a better return. We are more focused on cost and return and we will do better with our projects going forward because we have had time to test and learn coming out of this pandemic.
David Katz: All right. I appreciate that. And one last one, if I may. Regarding digital and just the digital strategy whether that's OSP, iGaming or TwinSpires. Look, there is a population of entities out there that are running at certain speeds and obviously that bears a cost and a risk profile. How have you thought about the notion of doing it yourselfers versus partnering versus using B2B providers, et cetera? And how your pacing that OSP and iGaming business relative to admittedly what's going on now is an awful lot of enthusiasm?
Bill Carstanjen: Yes. That's really good question and also really a hard question. I think partnerships, we have them with respect to technology. We have a technology partner. We have elected not to go invest in our own technology. And that's consistent with how we started businesses here in the company in the past. In the beginning, make your cost structure as variable as possible. So you pay by the drink and you can manage costs as you get into the business. So you don't over-commit and overspend early on. So our technology partners, we switched. We are now with GAN and Kambi and we feel pretty good about that. So we feel that that's very stable and we are optimistic about that. When it comes to other sorts of partnerships, marketing partnerships or equity partnerships, for us that just comes down to a question of, do we think that's going to lower our cost per customer acquisition? Do we think that that will save us, that that's a cheaper, more effective way to acquire customers than marketing on our own? And so those are always be deals that we look at and revisit. So one of the challenges in the space that people of in the space have approached differently and by the metric of market cap, it's been really beneficial to a couple. But we have looked around and looked at different deals and really felt that that doesn't really change at this point our cost per customer acquisition or give us confidence that it will change our cost per acquisition. So we haven't pulled the trigger on any of that, but over time we might. But we are an established company. We have multiple business models. We want to be very careful about not falling victim to over-enthusiasm. We want to make sure that we invest in businesses that we are going to drive an acceptable return for investors. And so we are confident we should be playing in this space. We are being very methodical. We are being very patient. We are being very careful and be patient with us. Give us a chance. We are being very thoughtful and spending as much time on this as any of our businesses. But enthusiasm is not a substitute for demonstrated returns. And so we want to make sure we see a path to get those before we commit incredibly seriously in some of these jurisdictions.
David Katz: Understood. I appreciate it. Thanks very much.
Bill Carstanjen: Thanks David.
Operator: And we have follow-up question from Brett Andress from KeyBanc. Your line is open.
Brett Andress: Following up on that last Churchill investment question. Would the plan still be in HRM operation on the Churchill property and now plus in annex in the surrounding area? I just want to make sure I am not crossing any wires. And I guess what analysis drove you to the conclusion that that market can absorb another HRM facility?
Bill Carstanjen: We always have the right to put HRM facilities at the racetrack. But as the crow flies, the racetrack is within five miles of Derby City gaming and in that sort of the South, Southeast portion of the city. So that's always there. We may pursue that. I am not discounting that for the future, as events unfold. But we have something in Derby City gaming that just flat out works. Just flat out works and when you find that in business, you should invest in what works. And Derby City gaming really works for us. So our predisposition is to look hard at more investment there. When it comes to the annex, Bill Mudd and his teams, we have a lot of analytics on where our customers come from, where do we see ZIP Codes in the metropolitan area that we don't draw from that we think maybe go across the river. We have done a ton of work to figure out where are the strong spots for Derby City gaming and where are the weak spots and where do the conventioneers who come to the city go. Do they go across the river? Do they go to Derby City gaming? Where do the transient folks that come through Louisville go? We have been running all of those questions because we do have that annex, which is independent of putting machines at the racetrack itself. So we have that annex that we can deploy and we would look to do that obviously to maximize the collective return out of the Louisville market, not over-cannibalize and not cannibalize in any material respect what we have going on at Derby City gaming.
Brett Andress: Very helpful. Thank you for the clarification.
Bill Carstanjen: Our pleasure.
Operator: And that's all the time we have for questions today. I would now like to turn the call back over to Mr. Bill Carstanjen for closing remarks.
Bill Carstanjen: Thank you to all of you out there who are interested in our company and who have invested in our company. We are humbled and grateful for it. And will do our best to be good stewards of your capital. Please stay tuned. Please tune in for the Derby on May 1. It's going to be a great one and I think it's really the first event since COVID hit in full force of this caliber and of this type with fans in the seats. So check it out. We will do it right. We will make you proud. Thanks very much everybody.
Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.
