Bally’s Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are to Q1 2020 unless otherwise noted. Bally’s operates land-based casinos and racing businesses and is expanding its sports betting and online gaming operations. Results are affected by acquisitions completed in 2020 and 2021 and by continuing COVID-19 operating restrictions.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $192.3 million | $109.1 million; up 76.2% |
| Income (loss) from operations | $29.5 million; 15.3% operating margin | $(3.2) million; (2.9)% margin |
| Net loss | $(10.7) million; $(0.30) per diluted share | $(8.9) million; $(0.28) per diluted share |
| Adjusted EBITDA (non-GAAP) | $52.5 million | $22.1 million; up 137.9% |
| Cash provided by operating activities | $25.9 million | $17.3 million |
| Cash used in investing activities | $(28.9) million | $(53.5) million |
| Cash provided by financing activities | $31.9 million | $212.2 million |
| Cash and cash equivalents | $151.7 million; restricted cash $3.8 million | $123.4 million cash at Dec. 31, 2020 |
| Total debt, including current portion and before unamortized discounts and fees | $1,134.3 million | $1,099.9 million at Dec. 31, 2020 |
| Net working capital | $163.2 million | $145.8 million at Dec. 31, 2020 |
| Capital expenditures | $15.3 million | $3.0 million |
Revenue growth included $78.6 million from properties acquired in the second half of 2020: Casino KC, Casino Vicksburg, Bally’s Atlantic City and Shreveport. Gaming and racing revenue rose 97.1%; non-gaming revenue rose 21.9%. Management also cited cost reductions and improved operating efficiencies after properties reopened.
Debt comprised a $567.7 million term loan, $75.0 million drawn on the $325 million revolver, and $525.0 million of 6.75% senior notes due 2027. The revolver had $250 million undrawn at quarter-end. The term loan interest rate was 2.95%. Bally’s reported compliance with its amended debt covenants. Lenders ended the COVID-related covenant-relief period early, effective April 1, 2021.
Material changes and unusual items
- Operating income improved by $32.6 million year over year, but net loss widened by $1.8 million. Other expense included a $27.4 million increase in the fair value of Sinclair performance warrants and options; interest expense increased $9.3 million to $20.8 million.
- A $10.7 million gain from insurance recoveries, primarily related to Hurricane Zeta damage at Hard Rock Biloxi, benefited operating results. Q1 2020 included an $8.7 million goodwill and asset impairment charge.
- Acquisition, integration and restructuring expense rose to $12.3 million from $1.8 million. Q1 2021 included $6.2 million related to the proposed Gamesys combination and $2.8 million for SportCaller and Monkey Knife Fight acquisitions.
- SportCaller and Monkey Knife Fight were acquired during the quarter. Their combined preliminary purchase accounting included $102.8 million of goodwill; the businesses contributed $1.1 million of revenue from acquisition through quarter-end.
- Cash flow from financing included $40.0 million of revolver borrowings, partly offset by $5.8 million of financing fees and $1.4 million of term-loan repayments. Operating cash flow benefited from acquired properties and included working-capital movements.
Outlook, risks and contingencies
The filing provides no specific quarterly or annual earnings or revenue guidance. Management expected available liquidity, operating cash flow and revolver capacity to fund operations, capital needs and debt service for the next 12 months, including pending acquisitions, while warning that ongoing pandemic effects could adversely affect liquidity and operations. Management said demand had begun to recover, but could not determine when or whether all properties would return to pre-pandemic demand. Casino operations remained subject to differing capacity and amenity restrictions.
Major growth plans included the proposed Gamesys combination, subject to shareholder, regulatory and other approvals. Bally’s had committed bridge financing of up to £1.435 billion and €336 million; a public share offering and Sinclair warrant issuance after quarter-end generated approximately $671 million net proceeds, which Bally’s said it intended to apply toward the transaction. Foreign-exchange contracts were entered into to hedge currency exposure. The combination entails financing, integration, regulatory, dilution and foreign-exchange risks.
Other disclosed commitments and proposals included the $90 million five-year capital program for Bally’s Atlantic City; a proposed $40 million Casino KC redevelopment; and pending acquisitions of Jumer’s, Tropicana Evansville and Bet.Works. After quarter-end, Bally’s acquired MontBleu and agreed to acquire Tropicana Las Vegas and announced the Gamesys offer. These transactions and plans remain subject to their stated conditions and approvals. The filing also cites gaming regulation, debt restrictions, rapid growth and integration challenges, competition in digital gaming, and COVID-19 uncertainty as risks.
Important facts for investors to verify
- Separate organic operating trends from revenue and EBITDA contributed by acquired properties, and assess how pandemic restrictions affected comparable properties.
- Review the composition and sustainability of Adjusted EBITDA, including its exclusions and the insurance recovery benefit, alongside GAAP net loss and cash flow.
- Monitor debt, interest costs, covenant requirements and the financing mix for Gamesys and other acquisitions, including any sale-and-leaseback obligations.
- Track Gamesys approval and closing conditions, funding requirements, foreign-exchange hedges, and potential dilution from equity, warrants and acquisition consideration.
- Confirm the final purchase accounting for recent acquisitions and the financial impact of pending or subsequently announced transactions.