Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2018 Fourth Quarter and Year-End 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'd now like to introduce your host for today's conference, Mr. Nick Zangari, Vice President, Treasury, Risk Management and Investor Relations.

Thank you, Tiffany. Good morning, and welcome to our fourth quarter and year-end 2018 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2018 fourth quarter and year-end 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 Web site titled News, located at churchilldownsincorporated.com, as well as in the Web site's Investors section. Before we get started, I would like to remind you that some of the statements 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- 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-K are available on our Web site at churchilldownsincorporated.com. One additional note, in the fourth quarter of 2018, we changed our TwinSpires' segment name to online wagering as we continue to expand our online sports betting and iGaming platforms. 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. I will walk you through our key 2018 performance highlights and how we have positioned our company for growth in each of our core business segments. Marcia will then provide additional details on our fourth quarter and full-year earnings. After she has finished, we will be happy to take your questions. In 2018, we executed on the sale of a nonstrategic asset and demonstrated our ability to grow organically on multiple fronts, acquire strategic assets, and effectively manage our capital to drive total shareholder return that exceeded the S&P 500, the Russell 2000 and virtually all of our gaming peers. We also returned over $555 million to our shareholders while maintaining one of the lowest leverage levels in the gaming industry. Here are few of the 2018 highlights. In early January last year, we completed the sale of Big Fish. In late February, we announced the signing of an agreement to acquire Presque Isle Downs & Casino in Pennsylvania, an excellent brick and mortar casino which will also provide access to sports and online wagering across the entire Pennsylvania market. In early May, we had a record setting Kentucky Derby Day and Kentucky Derby Week with respect to all of our significant financial metrics. In August, we opened our retail BetAmerica Sportsbook at our two Mississippi properties leveraging the expertise of our TwinSpires team and using we believe best-in-class technology from our technology partner SBTech to produce our custom designed kiosk. At the end of August, we traded our 25% interest in Saratoga, New York and Colorado for the remaining interest in Ocean Downs so…

Thanks, Bill, and good morning everyone. As Bill said, I will provide some details on our fourth quarter and total year 2018 financial results and some thoughts regarding 2019. As you review our financials, it's important that you see that we have updated all of our historical shares and related measures such as EPS to reflect the impact of the three for one stock split that was effective on January 25, 2019. So turning to our fourth quarter and total year 2018 results, we reported fourth quarter net revenue of $219 million up $40 million or 22% compared to the prior year quarters. A little over half of this increase was driven by revenue growth for our casino properties. The acquisition of the remaining interest in Ocean Downs on August 31, 2018 and solid revenue growth compared to the prior year quarter at our Louisiana properties and our Oxford and Riverwalk casinos drove a 26% increase in revenue for our casino segment compared to the prior year. The other major driver of fourth quarter revenue was Derby City gaming, the first historical racing machine facility in Louisville, Kentucky that opened in September, 2018 that is included in our other investments segment. Churchill Downs race track in TwinSpires also contributed to the quarter-over-quarter revenue growth which in part reflects a very successful Breeders Cup at Churchill Downs in November. Our fourth quarter adjusted EBITDA was up $5.2 million or 14% compared to the prior year quarter, the solid operating performance for our wholly-owned casinos in TwinSpires. The addition of Derby City gaming and our equity investment Miami Valley Gaming. All contributed to the increase in adjusted EBITDA compared to the prior year quarter. Turning to net income, fourth quarter net income from continuing operations was $7.3 million compared to $34.4 million…

Thanks, Marcia. Okay, everybody, if you have any questions please let us know, we'll be happy to answer them.

[Operator Instructions] And our first question comes from David Katz with Jefferies. Please proceed.

Hi, good morning, it's Erik Hellquist on for David. I just had a few questions on historical racing facilities; first on the Oak Grove opportunity, how are you viewing the landscape there at the prospective competition?

This is Bill, Erik.

Hi, Bill.

The competition that is most relevant is a facility called Kentucky Downs which is another historical racing facility sitting on the Kentucky side of the border. Our property will be on Route 24, coming out of Nashville, which is the road that heads directly north, but to the western side. And then the other road that heads out of Nashville directly north is I 65. Kentucky Downs sits on I 65 just on the Kentucky side of the border. They've been in operation for a number of years, they have different machines than ours, much fewer machines, but they will be the primary competition. There are also other facilities that Nashville residents can drive to, but I wouldn't bother getting into those on this call, because there are sufficient drives that I don't view them as primary competition.

Great, thanks. And as far as potential news that [ph] go with regulation as far as historical racing machines go, what's the latest that you're sharing on potential new regulations?

I think it's -- you're talking about new states, did I hear you correctly?

Yes.

At this stage in the state legislative cycles, there's always lots of noise, and confusion and fog. Certainly, there are lot of states that are talking about sports wagering or online iGaming, but other than that -- I'm sorry, we're talking about -- I may have misheard that question, are we talking about HRM or just online and sports wagering?

HRM.

HRM, I'm sorry. Gosh, other states considering new HRM -- there are some HRMs -- opportunities in other states like Virginia, we don't have an opportunity there, but -- I'm not aware, Bill, are you aware of any states that are considering new HRM legislation?

Illinois has kicked that ramp from time to time, but I'm not sure how much [indiscernible] that legislation actually has.

Okay, great, and just one more question on the historical racing machines themselves. So obviously, Ensworth [ph] has been a great partner for you so far, but as you look to expand a little further, do you think that other suppliers could make sense as well?

Yes, I think as the opportunity grows with Oak Grove and Virginia and other states that are considering it, whether it be Illinois or other existing states like Wyoming that has it, I think there's an opportunity for other manufacturers to come in at some point.

Great, thanks. Appreciate it. That's it from me.

Thanks, Erik.

Thank you. And our next question comes from Dan Politzer with JPMorgan. Please proceed.

Hey, good morning everyone and thanks for taking my questions.

Good morning.

So the first one on TwinSpires, I was hoping you could talk a little bit more about the competitive dynamics there. Can you walk us through your thought process on waiting it out and not getting more competitive, and then have you seen flare-ups in competition in the past? And I guess, on a similar note, how do you think about tantalizing Vision, long-term from online sports betting here? Thanks.

Thanks, Dan. You know what, I think the competition in this space ebbs and flows. As you know the channel to market through online in ADW has grown over time as people shifted their behavior out of wagering at brick-and-mortar facilities. Predominantly, OTB is into the online space. We do think that trend will continue. I do think there's a little bit of an episodic aspect to it in that you saw OTBs like New York City OTB that left or if you see tracks that used to conduct simulcasting when they weren't live that it becomes a point where they can't afford to do that. So it will continue to grow. I think the competition is at the high end of the market, where you have people that really have a lot of handle, but there's very little margin, I think, ultimately there is an end to that. And in terms of sports wagering and the impact we'll have on horseracing, sports wagering exists in the United States today, but it's all via offshore bookmakers that aren't licensed in the U.S. So a lot of people that wager on sports are already wagering on sports. I don't think it will have a whole lot of impact from a cannibalization perspective, and in fact it could even help draw people towards horse racing to the extent that they have the ability to wager on horse racing in addition to sports and other things on applications like what we have at BetAmerica. So ultimately, I don't see a whole lot of impact one way or the other and it could be positive just as much as it could be unfavorable to us.

Got it. Thanks, that's helpful. And then turning to Derby City, you guys mentioned you're adding 100 machines there. How should we think about that relative to kind of what's maybe a longer-term opportunity to add machines at the Churchill Downs track? And similarly, at 1,000 machines at Derby City, is that pretty much at capacity without you having to physically expand it?

Well, the second part first. We don't have to expand the Derby City facility to add the extra 100 games. As I'd remarked in my comments, our license allows us up to 2,000 games, and those games have to be at Churchill Downs whether they be at Derby City gaming or the race track. Certainly, we've thought about how could we best take advantage of the Louisville market in terms of where we place the machines and so that's something we'll continue to think about and certainly Derby City would not be able to absorb, in its current structure, 2,000 machines. Right now, the market doesn't warrant putting 2,000 machines in, but over time as the product improves, and as Bill mentioned, maybe we'll have opportunities to add additional manufacturers that even further enriched the quality of the product. We hope to have opportunities where it makes sense to explore significantly adding to the machine total. And at that point maybe we'll have something to talk about and something to announce publicly about where we place those machines. But right now, I would just acknowledge that it is possible to put machines at the track, at the track property. I'd acknowledge that that's a possibility. I'm not saying it's something we're doing right now. It's not something we're doing right now. But it's our job to consider the data, both in the short-term and in the long-term. So that's something we'll think about as the performance warrants.

Thanks for that. And then one more on leverage, do you guys still maintain that long-term target leverage of three to four times, and just wanted to make sure is that that's a consolidated target grand, I guess, the Mid Rivers is going to a good JV level anyway?

Yes, that's not a hard and fast rule. That's a target. So we constantly think about our capital structure. We constantly think about not just the amount of leverage we have, but the terms of debt that we take on. We are constantly exploring it. It's something I think as a core competence and a core interest of ours, because it's critical as we plan the long-term growth of our company. So, yes, like most companies we have some guidelines, some benchmarks we are constantly paying attention to, but we are also retesting our assumptions to see if we are optimizing how to responsibly grow our company.

All right, thanks so much. I appreciate the color.

Sure.

Thank you. And at this time, I'm showing no further questions in queue.

Okay. Well, thanks everybody. We appreciate your time today and your support and your investment in our company. We'll try to do the best job we possibly can to earn you a return into sensibly and responsibly investor capital. So thanks for participating today, and we will see you in a couple of months right before the derby.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.