Bally’s Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports fourth-quarter results. Amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
Bally’s operates land-based casinos and a racetrack, alongside North American and international interactive gaming businesses. At year-end it reported 14 casinos and one racetrack across 10 states. Its strategy centers on expanding interactive gaming and connecting online products with its casino properties and Sinclair’s Bally Sports media network.
2021 was a major acquisition and expansion year. Bally’s acquired Gamesys on October 1, along with several casino properties and interactive businesses. The acquisitions substantially changed the company’s scale and business mix; consequently, year-over-year comparisons are not like-for-like. The company reorganized its reporting into Casinos & Resorts, North America Interactive, and International Interactive.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1.322 billion | $372.8 million |
| Income (loss) from operations | $93.4 million | $(18.4) million |
| Net income (loss) | $(71.8) million | $(5.5) million |
| Diluted loss per share | $(1.45) | $(0.18) |
| Adjusted EBITDA (non-GAAP) | $333.7 million | $70.4 million |
| Cash provided by operating activities | $82.8 million | $19.5 million |
Revenue increased 254.7%, reflecting improved property operations as restrictions eased and substantial contributions from acquisitions. Acquisitions completed in 2021 and 2020 contributed $704.9 million of 2021 revenue in aggregate, according to management. Full-year operating margin was 7.1%, versus an operating loss margin of 4.9% in 2020; net loss margin was 5.4%, versus 1.5% in 2020. Gaming expenses were 39% of gaming revenue, up from 32%; general and administrative expense was 39% of revenue, down from 47%.
Fourth quarter: Revenue was $547.7 million, compared with $118.1 million in Q4 2020. Operating loss was $44.4 million and net loss was $115.3 million, versus operating loss of $17.6 million and net income of $20.2 million in Q4 2020. Q4 2021 included significant acquisition, financing and other unusual expenses.
Cash flow, debt and liquidity
- Operating cash flow was $82.8 million. Investing activities used $2.297 billion, principally including $2.274 billion of net cash paid for acquisitions and $97.5 million of capital expenditures. Financing activities provided $2.405 billion.
- Year-end cash and cash equivalents were $206.2 million; restricted cash was another $68.6 million and was primarily related to player and payment-service-provider deposits and other restricted balances.
- Gross debt principal was approximately $3.53 billion: $1.945 billion under the term loan, $85 million drawn on the revolving facility, and $1.5 billion of senior notes. The $620 million revolver therefore had approximately $535 million of undrawn capacity at year-end, subject to its terms and covenants.
- Current assets were $567.2 million and current liabilities $570.1 million. Long-term operating lease liabilities were $531.0 million; disclosed future minimum operating lease commitments were $834.8 million before discounting.
- Variable-rate debt was approximately $2.03 billion. Management estimated that a 1 percentage-point rate increase would add about $12.5 million to interest expense over the following 12 months.
Material changes and unusual items
- Gamesys consideration was approximately $2.60 billion, comprising $2.08 billion cash and 9.77 million Bally’s shares. It contributed $257.1 million of revenue and $18.2 million of net income from its October 1 acquisition date through year-end. Gamesys purchase-price allocations were preliminary; acquired intangible asset and goodwill valuations depend on significant forecasts and assumptions.
- Interest expense rose to $120.2 million from $63.2 million. Bally’s recorded a $103.0 million loss on extinguishment of debt when it refinanced prior facilities and redeemed its 2027 notes.
- Other notable items included a $53.4 million gain on the Bally’s Dover sale-leaseback, $30.0 million of contract termination expense related to William Hill agreements, and $22.8 million of bargain-purchase gains. Acquisition, integration and restructuring expense was $71.3 million.
- The company’s 2021 net loss includes costs and acquisition-accounting effects that are not captured in Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
Outlook, management commentary and risks
Management expected COVID-19 to continue negatively affecting operations in 2022, while noting that all properties were open with minimal restrictions at year-end. It expected operating costs to increase in 2022, particularly with the inclusion of Gamesys, and capital expenditures to exceed 2021 levels. Planned 2022 spending included approximately $50 million at Twin River and $40 million at Atlantic City; the Kansas City redevelopment was expected to require about $50 million, largely in 2022. Construction on the approximately $120 million Centre County, Pennsylvania project was expected to begin in the first half of 2022, subject to approvals.
The Tropicana Las Vegas transaction remained pending, with closing expected in the second half of 2022. The proposed purchase price for non-land assets was $150 million, alongside a proposed 50-year land lease from GLPI. The company also expected to fund the acquisition through sale-leaseback arrangements.
Key risks include pandemic-related disruption and consumer-spending weakness; intense casino and online gaming competition; extensive licensing, tax and regulatory requirements; integration and execution risks from rapid acquisitions; high leverage, variable interest rates and restrictive debt covenants; cybersecurity and payment-processing dependence; foreign exchange exposure, particularly to sterling; and potential changes to UK online-gambling regulation. The Rhode Island regulatory agreement imposes operating and financial restrictions, including a leverage-related threshold for certain actions, and requires investment commitments. Bally’s reported effective disclosure controls and an unqualified audit opinion; management and the auditor excluded newly acquired companies from their internal-control assessment, representing 13.2% of assets and 32.3% of revenue.
As a subsequent development disclosed in the filing, Standard General proposed on January 25, 2022 to acquire shares it did not own for $38 per share. The proposal was conditional, and the filing gave no assurance that a transaction would occur.
Important facts for investors to verify
- How much of reported growth and Adjusted EBITDA reflects acquired businesses versus organic performance, and whether acquired operations meet the company’s expectations.
- Gamesys purchase accounting, including preliminary goodwill and intangible-asset valuations, amortization assumptions and integration costs.
- Debt balances, interest-rate sensitivity, available revolver capacity, covenant headroom and the funding plan for planned acquisitions and capital projects.
- Execution, approval and financing status for Tropicana Las Vegas and Centre County, plus progress and costs on the Twin River, Atlantic City and Kansas City projects.
- Cash available for corporate purposes after accounting for restricted cash, lease payments, regulatory requirements and required property investment.
- Developments in the Standard General proposal and any resulting effect on shareholders, ownership or capital allocation.