Bally’s Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Business context
Bally’s operates casino and resort properties and interactive gaming businesses, reported in Casinos & Resorts, North America Interactive, and International Interactive. The September 2021 acquisition of Gamesys materially expanded the international online business; Tropicana Las Vegas was acquired on September 26, 2022. Management said properties were operating with minimal COVID-19 restrictions.
Financial and operating results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $578.2 | $314.8 | $1,679.0 | $774.8 |
| Income from operations | $53.7 | $27.7 | $161.5 | $137.7 |
| Net income (loss) | $0.6 | $(57.6) | $62.0 | $0.6 |
| Diluted earnings (loss) per share | $0.01 | $(1.16) | $1.05 | $0.01 |
| Adjusted EBITDA (non-GAAP) | $151.0 | $77.8 | $402.7 | $211.2 |
- Q3 revenue increased 83.7% year over year; nine-month revenue increased 116.7%. Management attributed growth to less-restricted operations, improved consumer confidence, and acquisitions. The 2021 acquisitions contributed $232.4 million of Q3 and $845.5 million of nine-month 2022 revenue.
- Q3 revenue included $217.2 million from International Interactive, $328.5 million from Casinos & Resorts, and $22.1 million from North America Interactive. Gamesys drove International Interactive’s contribution.
- Q3 operating margin was approximately 9.3%, versus 8.8% a year earlier; nine-month operating margin was approximately 9.6%, versus 17.8%. The nine-month comparison included sale-leaseback gains of $50.8 million in 2022 and $53.4 million in 2021.
- Q3 gaming expenses rose to $197.2 million from $78.4 million, while advertising, general and administrative expenses rose to $192.0 million from $140.5 million. Management cited acquired operations and higher costs; interactive advertising expense was $26.7 million for Q3 and $139.4 million for the first nine months.
- Q3 Adjusted EBITDA by segment: Casinos & Resorts $106.9 million; North America Interactive loss of $19.7 million; International Interactive $76.3 million. North America Interactive’s nine-month Adjusted EBITDA loss was $59.9 million, which management attributed mainly to increased operating costs.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $225.3 million, investing cash flow was a $69.5 million outflow, and financing cash flow was a $189.9 million outflow. Cash and restricted cash ended September at $220.1 million, down from $274.8 million at year-end 2021.
- Cash capital expenditures were $167.4 million, versus $65.1 million in the prior-year period. Management expected full-year 2022 capital expenditures to exceed 2021, citing property projects and maintenance; it estimated 2022 spending of about $50 million at Twin River, $40 million at Atlantic City, and $50 million on the Kansas City redevelopment.
- Long-term debt, including current portion and net of discounts and financing fees, was $3.43 billion at September 30; the balance sheet also showed $3.41 billion of long-term debt net of current portion. Principal included a $1.93 billion term loan, $75 million revolver borrowing, and $1.50 billion of senior notes. The company had $2.01 billion of variable-rate debt outstanding.
- Interest expense, net, was $53.7 million in Q3 and $145.5 million for nine months. Management estimated a 1 percentage-point increase in effective interest rates would add about $20.1 million to interest expense over the next 12 months.
- Cash and cash equivalents were $164.5 million and restricted cash was $55.7 million. Management stated that cash, operating cash flows, and revolver availability were expected to meet operating, capital expenditure, and debt-service needs. The $620 million revolver had $75 million drawn; its financial covenant applied only above the stated 30% borrowing threshold and was not applicable at quarter-end.
- Operating lease liabilities were $823.3 million; undiscounted minimum operating lease commitments were $1.70 billion. The company had received a $200 million GLPI advance deposit, recorded as an accrued liability, in connection with the proposed property transactions.
Material changes, outlook and risks
- Tropicana Las Vegas was acquired for $148.3 million; the company leases the underlying land for an initial 50 years at annual rent of $10.5 million. The purchase price allocation was preliminary.
- In April 2022, Bally’s sold Black Hawk and Quad Cities real estate to GLPI for $150 million and leased the properties back, recording a $50.8 million gain. A proposed $635 million GLPI transaction covers the real property assets of Hard Rock Biloxi and Tiverton, with an anticipated initial closing in early 2023; GLPI also has an option, subject to consents, to acquire Twin River real estate for $771 million before year-end 2024.
- The planned $1.7 billion Bally’s Chicago casino resort is subject to approvals and construction execution. Bally’s made a $40 million upfront payment and provided a performance guaranty. A temporary casino was expected to open by the end of the first half of 2023, subject to regulatory approval and other conditions. The Centre County, Pennsylvania project was expected to begin construction in the first half of 2023, subject to approvals.
- No consolidated revenue or earnings guidance is stated in the provided filing text. Management described planned investment and expected higher 2022 capital expenditures; it also expected operating expenses to rise in 2022, particularly due to acquired businesses.
- Foreign currency translation reduced accumulated other comprehensive income by $483.5 million during the first nine months; the company also recorded a $213.2 million translation loss in Q3. Management identified British pound/U.S. dollar movements as a risk. COVID-19 developments, economic conditions, competition, regulation, acquisition integration, debt restrictions, and project execution were also identified risks.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2022 because of unremediated material weaknesses in risk assessment and control activities, related to monitoring subsidiary functional-currency assessments and applying foreign-currency accounting. Management was developing a remediation plan; the filing warns of possible future material misstatements if the weaknesses are not addressed.
- The company repurchased 5.72 million shares for $132.5 million during the first nine months, including a 4.7 million-share tender offer at $22 per share. It reported $215.4 million remaining under its capital return program, subject to regulatory and debt limitations, and no dividends paid during the period; management did not intend to pay dividends in the foreseeable future.
Key facts for investors to verify
- Progress and effectiveness of remediation for the disclosed material weaknesses, and whether any further accounting corrections are required.
- Interactive segment economics, particularly North America Interactive losses and the scale and cost of customer acquisition.
- Liquidity and debt-service capacity under higher interest rates, including revolver availability and covenant headroom.
- Timing, approvals, funding, and lease obligations for the GLPI transactions and Chicago and Centre County projects.
- How much reported growth reflects acquired businesses, currency movements, and one-time items rather than comparable organic performance.