Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2018 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I’d now like to introduce your host for today’s conference, Mr. Nick Zangari, Vice President, Treasury and Investor Relations.

Thank you, Carina. Good morning and welcome to our 2018 first quarter earnings conference call. After the company’s prepared remarks, we will open the call for your questions. The company’s 2018 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 churchhilldownsincorporated.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 report on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release. The press release and Form 10-Q are available on our website at churchhilldownsincorporated.com. And now, I’ll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen.

Thanks, Nick. Good morning everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. Today, I will focus on our operating performance and our plans to grow each of our business segments. Marcia will then provide additional details on our first quarter earnings, which should further help you understand how to think about our core earnings and capital management going forward. After she has finished with her comments, we will be happy to take your questions. To start, we are pleased with our operational performance in the first quarter. We had several strategic initiatives underway over the second half of 2017 through the first quarter of 2018 and it was very important for our business teams to stay focused on executing their plans during this period. Our three business segments grew net revenues 13% over the first quarter of prior year to $189 million and grew adjusted EBITDA 36% to $49.2 million. Turning, to the Racing segment, the first quarter is always very quiet. What is most important to the company and our Racing segment is the upcoming Kentucky Derby, a week from the Saturday. As you may recall, we put out a press release very shortly after each Kentucky Derby covering the key operating and financial results for the event. Please be on the lookout for that after this year’s Derby. Beyond the financial results, we are trying to improve everything we do around the Kentucky Derby. We have consistently invested in our facility over the last number of years to make sure we can offer our customers a world-class experience. In 2017, we completed our $16 million upgrade to the clubhouse; nearly 18,000 of our guests were…

Thanks, Bill, and good morning everyone. As Bill said, I will provide additional details on our first quarter earnings and help you understand how to think about our core earnings and capital management going forward. So turning to our first quarter results. We reported net revenue of a $189 million for the first quarter, up $22 million or 13% compared to the prior year quarter. Adjusted EBTIDA was $49 million in the first quarter, up nearly $13 million or 36% compared to the prior year quarter. We benefited from strong contributions from each of our wholly-owned casino properties, solid performance from our equity investments in the Ocean Downs and Miami Valley Gaming, and a 20% in handle for our TwinSpires business. Our Casino segment contributed $9 million of the increase in adjusted EBTIDA in first quarter versus the prior year quarter with our wholly-owned Casino is delivering $8 million of the increase and our equity investments delivering the balance, although in climate weather resulted in a slower January for some of our properties. There are strong results in February and March mitigated the impact for the quarter. A small very focused team at corporate helps ensure that our casino properties share and execute effective marketing, and promotional best practices, and they also work closely with our casino property leadership teams to maintain disciplined cost controls to effectively flex variable costs based on the revenue trends for their respective properties. The growth in our wholly-owned Casino properties in the quarter reflects some of the benefits of this approach as well as our strong property level leadership. In addition, our Calder Casino benefited from the continued closure of a nearby competitor and our Oxford Casino enjoyed the first winter with their new hotel and expanded Casino floor. Our casino equity investments also…

Thanks, Marcia. I think we’re now ready to take questions for those of you that have any so far away.

Thank you. [Operator Instructions] Your first question is from Dan Politzer with JPMorgan. Please go ahead.

Yes. Thanks for taking my question. So, Casino performance was a lot better than I think we expected and flow through was pretty high. What factors have enabled you to improve margin there so dramatically, and are there any specific operating or marketing initiatives that you would highlight?

I think every location – hi Dan, this is Bill Mudd. I think every location is a little bit unique. What is consistent across all properties is the higher-end customers have made more frequent trips. So, they had more trips per week than what they’ve had in recent memory. Some of that’s driven by more marketing and promotion program. Some of that’s driven by better weather in certain areas we have. And then even some of the improvement is driven by whether it be smoking patios of the new hotel at Oxford, all of that kind of comes into play, so it’s not one thing, it’s multiple things that we’re doing across each of our properties and each markets unique.

Got it, thanks a lot Bill. And then just as far as your capital allocation obviously, you had a big tenor offer and they completed in the prior quarter, I mean given where the stock is now? Is it reasonable to expect that you would be buyers of the stock at these levels or certainly below the levels that you had purchased previously?

Dan, that’s a tricky question, we can’t comment or hint about things like that looking forward. But it’s still – it’s a fair question that you have in your mind, but it’s hard for us to give you any guidance or comfort on that, because of the rules that govern all these sorts of conversations. But I would say that we remain dispassionate and inclusive in our senior management team as we think about options that are available for our company, all sorts of different options whether all that you can think of. So we considered a – we continue to consider all the opportunities that are available to us. But also we believe very, very strongly in the future growth of this company. So we have to balance across the range of capital deployments that are possible. And I’m sorry, I can’t be more specific than that I wish I could be, but the best I can tell you is, we think carefully about it and we believe very, very strongly in the future of our company. So, I know to put the stock price is something everybody focuses on this call a lot, I understand that, but I believe long-term always in the strength of our future. So I don’t sweat it day-to-day.

Got it, that’s helpful nonetheless. And one last one, I know there is a press release out in the last couple weeks, I mean issued by double down, on the Cater case in Washington, and also there is an ISGA analysis out as well, both of which highlighted in a number of issues with the circuit court ruling on the Cater litigation related to Big Fish. Can you just provide your perspective on the points we made or possibly add anything additional regarding the case?

Sure, Dan. We don’t usually comment on active litigation other than the disclosure in our 10-Q, but I certainly want to address your question to the extent that I can. First, I would encourage you and everybody to review the disclosure in our 10-Q, which provides some background information and a timeline of events to-date that relate to the case. As you noted Double Down and the International Social Games Association or the ISGA have offered their views on the Ninth Circuit’s legal reasoning, both Double Down and ISGA disagree pretty strongly with the Ninth Circuit’s legal analysis related to the Cater case and that’s their prerogative to do so. With respect to us, we strongly believe that Big Fish casino did not violate Washington State Law and we have a very strong legal and factual series of defenses to assert as the Cater case goes forward. So as I said in my earnings comments, we’re going to vigorously defend ourselves this matter against all allegations. And that’s all I can responsibly say at this point Dan, but certainly, we will keep investors informed as appropriate going forward.

All right. Thanks so much, guys. Appreciate it.

[Operator Instructions] Your next question is from David Katz with Jefferies. Please go ahead. Mr. Katz, your line is open. Please go ahead. Mr. Katz, your line is open. Your next question is from the line of Adam Trivison with Gabelli & Company. Please go ahead.

My question, it’s kind of a high level question on PASPA repeal and opening up of the sports betting in regional markets. Could you just give us your high level thoughts on how you’re positioning in the company, and how you see yourself positioned to take advantage of those changes?

Sure. And first, you don’t ever want to count your chickens before they hatch. So PASPA is before the Supreme Court now and it’s expected that the Supreme Court will rule at some time in the near future, presumably in the second quarter to give some guidance for all of us that follows these issues what the landscape will be for sports wagering in the country going forward. And until they provide that guidance and PASPA stands as it does now and that’s fairly restrictive in this country. So for us, as we’ve stated overtime, and I mentioned in our – in my comments a few minutes ago, we’re very interested in online wagering, we’re legal, we’re very interested in alternative products that are made available by different jurisdictions and an opening of PASPA and opening of sports wagering would be something that we would be very interested in and that we would look to pursue licenses. However, those licenses are made available presumably tied to brick and mortar facilities on a state-by-state basis. We would be interested in pursuing those, subject to the tax right and other regulatory restrictions on those. So, I think it would be exciting if it were possible to conduct sports wagering in this country and we’ll monitor it carefully. We have a lot of experience with different forms of wagering including online wagering through TwinSpires. And we think our company and our team is well-situated and experienced in ancillary products in order to transition into this one if it were made available to us in this country.

Okay, great. Thank you for that. And then I guess as a follow-up, any update on the situation in Illinois in terms of potential gaming expansion or where you think things stand there and I guess you’re thinking just on the real estate value in – under Arlington and how you view that asset?

Well, Illinois, Illinois politics has defied prediction generally; I would say that there is some level of discussion about expanded to gaming in the state. That’s something that we always are very heavily involved in and are always very thoughtful about that that is our long-term plan for that property that that is the requirement for that property to remain as a viable asset long-term. So, it’s very important to us that we achieve that for that property. And I don’t – I’m not afraid of the appetite in the state for expanded gaming, I don’t think it’s a negative to us. I think there’s a lot of interest in expanded gaming for Arlington Park. But it’s caught up in a larger series of issues in the state legislature, and between the state legislature and the Governor, and those have to be sorted out concurrently for us to receive any benefit at Arlington Park. So we’ve tried to tread water, we’ve to play our cards patiently and smartly, and be there when the circumstances are right for us to get expanded gaming. And maybe it’ll happen, and maybe it won’t. But certainly the long-term viability of that property requires additional forms of gaming. long-term, it is not viable as simply a racetrack. So we’ve been patiently working with our legislative friends. So we explained that to them and to discuss potential solutions for the long-term.

Great. That’s really helpful. Thank you very much.

[Operator Instructions] Your next question is from David Katz with Jefferies. Please go ahead.

Good morning, everyone and congrats on a very nice quarter. What I wanted to ask is, as a sort of one-time follower of the stock, I think we had a discussion a few years back about where the value on the shares was, and where the company was headed without commenting on the value, I think we can probably agree that the market’s perspective of value has changed considerably the past few years. Where the company is headed today is really the issue that we contemplate on a regular basis, where are the avenues of growth, I know that we are building some facilities in Louisville, and you made an acquisition in regional. Can you paint us a little bigger picture of what you envision the company to be in a few years in terms of size and in what kinds of businesses and what those strategic discussions look like, please?

Sure. Happy to do that. We’re very comfortable as a senior management team in our three core segments that we have now. So we’re thrilled to have an asset like the Kentucky Derby. Not only is it a trophy asset, but it’s an asset that has so much potential. And we see a path to continue to grow it if we are smart and disciplined and focused, and we expect to do that and I think our track record so far has shown that we have been doing that. So taking each of – taking our company and dividing it in the segments, that’s how to think about the Kentucky Derby. We still see organic growth and responsible capital projects that can drive further growth for that segment. TwinSpires a similar story that that’s a business that I think has demonstrated to all of you that there is organic growth and also it’s a linchpin for our understanding and ability to conduct other forms of online wagering like we plan to do in Pennsylvania assuming we are – we close that transaction as we expect to and in the property, the business lines are made available to us. So those two those two segments; taking them first show a real organic growth and a real pathway to use that team and to use those skill sets to further grow that business – those segments. The Casino segment, brick and mortar casino, we demonstrated that we can drive margin improvements. We’ve demonstrated that we can make smart capital investments, and I think we’ve demonstrated that we can do smart deals there when they come available. So that’s another segment that overtime, we’ve become much more comfortable with and achieved a better understanding of and built a really, really strong team, under Bill Mudd’s leadership, he has really pushed that team forward and really developed a lot of skills and capabilities that are helping our company grow. So I like all three of our segments. I think we have a lot to do both from an organic perspective whether it be Greenfield’s or otherwise and even from M&A to grow our company. So I think we’re focused right now within the confines of our existing business segments, because we see great opportunities in all three of those segments. I would say that having been here a while and having worked with the core team here for a while. We’re all very disciplined people individually and as a team. We have a long-term focus on creating shareholder value and we’ll continue to do that. And I have to say right now though that I like the prospects if you take our business and divide it into the three segments, I like where we’re going in all three segments and collectively that’s a good story I hope for the company.

Perfect. Now, just to follow-up with respect to the casino space and I fully recognized that you’ve made an acquisition that’s pending. But the big players keep getting bigger and they build loyalty programs. They’re building data analytics teams; they’re focused on how best they can use their scale. And it does seem that the population of smaller operators and I realize you’re not as small as the really small ones, but they’re becoming the endangered species. How do you process that matter and that issue and do you contemplate the notion of a potential larger step to build a little more scale that could reflect the brand a loyalty program, players card, those sorts of things in the future?

I don’t think there’s a single roadmap for success. I think, we as a team pay attention to what we see in the space and what we see other people doing, and in fairness, we have followed a slightly different model than most of them we have a very disciplined filter for how we look at deals we generally of shied away from the – really large individual property deals. We’ve generally wanted – we’ve generally focused on smaller property, smaller bets. Markets we understood stable tax rates etc. We’ve generally followed a path that’s worked for us over a number of years. so at every time, we always talk about different passer or who is doing it better or who we should emulate and who we can learn from, and we’ll continue to do that. But I do think the model that we have followed for building our casino company has been very, very focused on the returns. We thought we could generate on the efficiency of those deals on the best application of capital versus other avenues, where we can place that capital and that’s how we’ve built that company. So that’s first and primarily, first and foremost how we do it. But we do pay attention to what other people are doing, so that we can learn from them. But we tend to be I think, very focused on what is the best application of our capital vis-à-vis our alternatives and I think that’s a good way to be. I think it works for us; it’s great to see other people in the space have lots of success and get bigger in all of that. And I hope we continue to grow our company, because we have efficiently grown it by every metric over the last number of years. But I think in some sense we started from a smaller placement, some of these other companies might have. So we’ll keep doing what we’re doing, because it works for us. But I don’t want you to think that we don’t pay attention to others or we don’t understand what others are doing. We do. We watch them, it’s just – it’s not one size, fits all everybody has their different criteria and their different philosophies for what they’re doing and so that we. And so I think Bill as we’ve acquired more properties, Bill Mudd has made the case that it was important to build some centralization to drive efficiency in margins and it keeps proving when we add those resources, but it does drive those things. So I think that’s part of it as you pick up more properties, but fundamentally, it’s not about getting as big as possible it’s about efficiently growing and allocating our capital in the most efficient responsible way that we can.

Understood. And I’ll apologize I know that my sense is that this issue may have come up already, but I did want to just ask a question about sports betting since it’s been really a heightened focus among our clients and for us as well. And I wanted to try and be just a little more specific about what roles within the value chain you expect to potentially play. And I suppose what I’m asking is, would you – would you enroll that includes the bookmaking aspect of it for yourselves? And I assume that you – I’d love to hear you just talk about how big an opportunity, this might be for you. Is this a game changer or is it you know a nice opportunity or is it incremental?

Well, first, it’s always tough on these calls to talk about hypotheticals and it’s potentially dangerous to talk about hypotheticals.

It’s the best part, Bill.

I understand, I understand. I think we’ll have to wait and see what happens with the Supreme Court case, because that really will drive the potential scope of the opportunity. So, sometimes I think people talk about that in black and white, the PASPA is going to be overturned or PASPA is going to be confirmed. Well, it might be something in between; it might be something in the middle. We’ll have to – we’ll have to wait and see what the Supreme Court does in this case, because that really is the driver of the potential opportunity to the extent that there is an opportunity for expanded wagering including sports wagering, sports betting. For us, it looks to us like that it’s likely that that will be a state-by-state determination potentially driven by access to a brick and mortar gaming license. We have some of those and I think we have a fairly good understanding of how the product works. But of course, we don’t currently operate our offer anywhere in the world sports wagering and our thought on that is to always offer when we do have a product. We want to make sure we offer a best-in-class product. As sophisticated a product is as we can make available in the market. And so we don’t take any pride as to what we have to build that ourselves versus outsource some of that capability you mentioned bookmaking. We’ll have to evaluate – we’ll have to evaluate it at the time, but our perspective on this would be to offer as a competitive product as we responsibly could offer if we were allowed to offer such a product, and we’re not hung up. We’re not dogmatic on where we get that product from. We will seek with our team to identify the best customer offering that we can come up with and then the best marketing programs around that offering to give us the best opportunity to be successful and I’m sorry I’m being vague, it’s just – we’re building hypotheticals upon hypotheticals. And all I can do is talk philosophically and conceptually until there is more need around the potential opportunity, which will – as in the gambling space in general, the opportunity is really something that is at the discretion of the state or the regulatory authority. So you always have to wait for them to provide guidance on the parameters that you can do business.

Now, it’s a perfect answer. I appreciate it, and congrats on the quarter again.

Thank you. Appreciate it.

There are no further questions at this time. I’d now turn the call back over to Mr. Bill Carstanjen.

Thanks, Katrina. Thanks everybody for joining us this morning for investing in our company or thinking about investing in our company. We always appreciate your feedback and we also appreciate your investment. So with this, it’s Happy Derby as far as I’m concerned. We’re going to – we’re going to put all this aside and go get busy and have a great Derby. So Happy Derby everyone, I hope to see many of you out there and if you’re not out there at the track, then open up your TwinSpires account and participate online and watch us on television. Thanks everyone. Bye-bye.

This concludes today’s call. You may now disconnect.