Bally’s Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Bally’s operated land-based casinos and racing properties and pursued expansion into sports betting and iGaming. The year included pandemic-related closures and restrictions and several significant acquisitions.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $372.8 million | $523.6 million |
| Operating income (loss) | $(18.4) million; (4.9)% margin | $114.6 million; 21.9% margin |
| Net income (loss) | $(5.5) million; diluted EPS $(0.18) | $55.1 million; diluted EPS $1.46 |
| Adjusted EBITDA (non-GAAP) | $70.4 million | $167.2 million |
| Cash from operating activities | $19.5 million | $94.1 million |
| Cash used in investing activities | $(444.8) million | $(38.9) million |
| Cash from financing activities | $366.4 million | $48.9 million |
| Cash and cash equivalents at year-end | $123.4 million | $182.6 million |
| Net working capital | $145.8 million | $155.2 million |
| Debt at par, including revolver | Approximately $1.129 billion | Approximately $698.5 million |
Revenue declined 28.8%, primarily because all properties were temporarily closed in spring 2020 and then reopened with capacity and amenity restrictions; Rhode Island properties also closed again for three weeks late in the year. Acquisitions partly offset the decline. Gaming and racing revenue fell 21.8%; hotel revenue fell 36.5% and food and beverage revenue fell 54.0%.
Operating costs fell only 4.3% to $391.2 million, so lower revenue drove the operating loss. Adjusted EBITDA fell 58%. Interest expense increased to $63.2 million from $39.8 million, reflecting higher borrowing and rates. Investing cash outflow mainly reflected $425.1 million of cash paid for acquisitions; capital expenditures were $15.3 million, down from $28.2 million.
At year-end, the company reported $569.1 million of term loans, $35.0 million drawn on a $250 million revolving facility, and $525 million of 6.75% senior notes due 2027. It reported $3.1 million of restricted cash in addition to cash and cash equivalents. Management said cash, operating cash flow and available credit were expected to fund obligations and announced acquisitions for the foreseeable future. The credit facility’s covenant-relief period imposed minimum-liquidity requirements and restricted dividends, share repurchases, investments and certain acquisitions; the relief period was scheduled to end March 31, 2021.
Material changes and unusual items
- Completed acquisitions of the Black Hawk casinos, Casino KC, Casino Vicksburg, Bally’s Atlantic City and Shreveport. These expanded the portfolio but make year-over-year comparisons less like-for-like.
- Changed the corporate name from Twin River Worldwide Holdings to Bally’s Corporation and began trading as BALY in November 2020.
- Signed a long-term strategic agreement with Sinclair Broadcast Group and agreed to acquire Bet.Works. The Sinclair arrangement generated a $57.7 million fair-value loss on naming-rights liabilities in FY2020 and included warrants, options, naming-rights fees and a tax-sharing arrangement.
- Recorded $63.9 million of bargain-purchase gains for Bally’s Atlantic City and Shreveport. These gains helped offset other expenses; acquisition purchase-price allocations were preliminary.
- Recorded an $8.7 million impairment related to the Black Hawk acquisition and $14.1 million of storm-related losses, primarily associated with Hurricane Zeta.
- Recognized a $69.3 million income-tax benefit, including a $33.3 million CARES Act benefit. The company reported a 92.7% effective tax rate, which was materially affected by tax-law benefits and acquisition-related items.
- Quarterly data show fourth-quarter revenue of $118.1 million and net income of $20.2 million; annual results were a net loss. The filing attributes significant unusual items to the annual and quarterly results.
Outlook, risks and contingencies
Management expected COVID-19 restrictions and weaker demand to continue affecting operations during 2021 and could not predict when properties would return to pre-pandemic levels. Properties remained subject to capacity limits and unavailable amenities. Management expected 2021 operating costs and capital spending to rise as acquisitions and projects were added.
Planned investments included approximately $40 million to redevelop Casino KC, $90 million over five years for Bally’s Atlantic City (with Caesars agreeing to reimburse $30 million subject to the stated arrangement), and an estimated $120 million for a proposed Centre County, Pennsylvania casino, subject to approvals. Pending transactions included MontBleu, Jumer’s, Tropicana Evansville and Bet.Works; approvals, closing conditions and funding remain relevant. SportCaller was acquired in February 2021, and the MKF acquisition was agreed but pending at the filing date.
Key risks include prolonged pandemic effects, acquisition integration and execution, substantial debt and variable-rate exposure, restrictive debt and Rhode Island regulatory covenants, gaming-license and other regulatory requirements, competition, labor matters, cyber and technology risks, and the uncertain economics and regulatory development of digital gaming. A 1% change in effective interest rates was estimated to change annual interest expense by approximately $6.0 million at year-end debt levels. The company did not expect to pay dividends in the foreseeable future.
The filing reports that the independent auditor issued an unqualified opinion on the financial statements. Management assessed internal control over financial reporting as effective, but excluded the newly acquired businesses from its assessment; those businesses represented approximately 32% of consolidated assets and 19% of FY2020 revenue. The auditor did not provide an internal-control attestation.
Investor verification priorities
- Confirm current operating restrictions, demand recovery and property-level results after the reporting date; FY2020 comparisons are affected by closures and acquisitions.
- Review debt balances, variable-rate terms, covenant status and liquidity after the covenant-relief period, including subsequent credit amendments.
- Track the final purchase-price allocations and realized performance of acquired properties, and any further integration costs or impairments.
- Assess the economics, dilution, accounting liabilities and execution milestones tied to the Sinclair agreement and planned interactive-gaming strategy.
- Verify approval, closing, financing and capital-spending status for pending acquisitions and development projects, including the Atlantic City commitment.
- Review the composition of reported net income and cash flow, particularly bargain-purchase gains, the Sinclair fair-value charge, CARES Act tax benefits and storm losses.