Twin River Worldwide Holdings, Inc. (now Bally’s Corporation) — Q2 2019 Form 10-Q
Quarter ended June 30, 2019; filed August 12, 2019. The issuer was named Twin River Worldwide Holdings at the time. It operated casinos, hotels and racing facilities across Rhode Island, Mississippi, Delaware and Colorado. Dover Downs was acquired on March 28, 2019, so its results are included only from that date; comparisons are also affected by Tiverton’s 2018 opening and Newport Grand’s closure.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $143.2 million | $110.8 million | $263.8 million | $215.6 million |
| Operating income | $33.8 million | $31.4 million | $64.2 million | $56.3 million |
| Net income | $17.2 million | $20.3 million | $34.8 million | $32.9 million |
| Diluted EPS | $0.42 | $0.49 | $0.87 | $0.79 |
| Operating margin | 23.6% | 28.4% | 24.3% | 26.1% |
- Q2 revenue rose 29.2%, largely reflecting Dover Downs, Tiverton’s ramp-up and higher hotel and food-and-beverage revenue. Management also reported softer New England market conditions and late-quarter competition, particularly at Twin River Casino Hotel.
- Q2 net income fell 15.4% despite higher revenue. Interest expense increased to $10.0 million from $5.1 million, and operating costs rose faster than revenue. Six-month net income increased 5.6%; the 2018 comparison included a $5.9 million Newport Grand disposal loss.
- Operating cash flow was $56.7 million for the first half, versus $55.4 million. Investing used $29.2 million, compared with $70.4 million, reflecting lower project spending after hotel construction; financing provided $282.0 million, primarily from refinancing.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $383.4 million, with restricted cash of $7.5 million. Current assets were $444.1 million and current liabilities $99.5 million.
- Reported debt, net of discounts and financing fees, was $684.6 million, including $3.0 million current. Principal consisted of a $300 million term loan and $400 million of 6.75% senior notes due 2027. The $250 million revolving facility had no borrowings; its stated interest rate was 5.16% at quarter-end. The company reported covenant compliance.
- In May, the company refinanced its former credit facility, issued the notes and recorded a $1.5 million debt extinguishment/modification loss. It held substantial refinancing proceeds in cash at quarter-end. Management said operating cash flow and available credit were expected to cover operating and internal investment needs for the next 12 months.
Outlook, transactions and material items
- Management estimated 2019 capital spending of approximately $24 million and expected the remaining-2019 effective tax rate to be consistent with Q2. No specific revenue or earnings guidance was provided.
- The board authorized a capital-return program of up to $250 million, including repurchases and dividends. A $0.10-per-share dividend was declared for July payment; management said future quarterly dividends were targeted at an approximately 1% annual yield, subject to board discretion.
- After quarter-end, on July 26, the company repurchased approximately 2.5 million shares for $75 million in a modified Dutch auction tender offer, funded with cash on hand.
- Pending acquisitions included three Black Hawk, Colorado casinos, expected to close in early 2020 subject to approvals, and two casinos in Kansas City and Vicksburg for $230 million cash, also expected to close in early 2020 subject to approvals. Management said the transactions would expand and diversify operations.
- Rhode Island state police executed search warrants on June 14 concerning the company, a non-officer management employee and a third-party food-court operator. The company said it was cooperating; counsel was advised that the company and its employees other than that employee were not investigation targets or subjects as of the filing, and the investigation’s focus and outcome remained unclear.
- Other risks include stronger regional competition, gaming regulation and taxation, acquisition integration and approval risk, refinancing and covenant constraints, and litigation. The company was defending a shareholder fiduciary-duty lawsuit and said it did not expect a material adverse effect.
Investor verification points
- Separate underlying property performance from the effects of Dover Downs, Tiverton’s ramp-up and other period-comparison changes.
- Monitor New England competitive impacts, particularly following Encore Boston Harbor’s June 2019 opening, and the effects on Rhode Island revenues and margins.
- Review debt terms, interest-rate exposure, covenant headroom and liquidity after the $75 million tender offer and planned acquisitions.
- Track regulatory approvals, purchase terms and integration progress for the pending acquisitions; the Black Hawk purchase price is not clearly stated in the filing text provided.
- Follow developments in the Rhode Island investigation and shareholder litigation, as well as future capital returns and actual capital spending against the $24 million estimate.