Bally’s Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; unaudited. Bally’s operates Casinos & Resorts, International Interactive, and North America Interactive businesses.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $632.5m | $578.2m | $1,837.4m | $1,679.0m |
| Income from operations | $37.2m | $53.7m | $420.0m | $161.5m |
| Net income (loss) | $(61.8)m | $0.6m | $90.9m | $62.0m |
| Diluted earnings (loss) per share | $(1.15) | $0.01 | $1.67 | $1.05 |
| Operating margin | 5.9% | 9.3% | 22.9% | 9.6% |
Q3 revenue rose 9.4%, led by gaming, hotel, and food-and-beverage growth, including Bally’s Chicago’s temporary casino, which opened September 9, and recent acquisitions. Q3 operating income and net results weakened despite higher revenue: higher expenses, interest costs, and a $43.9m tax provision contributed to the quarterly net loss. The nine-month operating-income increase chiefly reflects a $374.3m sale-leaseback gain, so it is not a like-for-like indicator of recurring operating performance.
For the nine months, gaming revenue increased 7.6%; non-gaming revenue increased 18.3%. General and administrative expense rose to $732.1m from $579.8m. Consolidated Adjusted EBITDA, a non-GAAP measure, was $141.6m in Q3, down 6.2%, and $398.0m for nine months, down 1.2%. Segment Adjusted EBITDAR for Q3 was $118.2m for Casinos & Resorts, $85.5m for International Interactive, and a loss of $17.6m for North America Interactive. These measures are not substitutes for GAAP earnings.
Cash flow, debt, and liquidity
- Nine-month operating cash flow was $118.4m, versus $225.3m in 2022. Capital expenditures were $266.2m, versus $167.4m.
- Cash and cash equivalents were $178.5m at quarter-end; restricted cash was $119.3m and generally unavailable for company use. Combined cash and restricted cash was $297.8m.
- Long-term debt, including current portion and net of discounts and financing fees, was $3.445bn. The balance included $1.911bn of term loans, $115m drawn on the revolver, and $1.485bn of senior notes. The $620m revolving facility matures in 2026; term loans mature in 2028 and notes in 2029 and 2031.
- Operating lease liabilities were $1.213bn; a separate $200m Chicago ground-lease financing obligation was also recorded. Nine-month net interest expense was $201.0m, up from $145.1m.
- Management said existing cash, operating cash flows, and revolver availability were expected to meet operating, capital-spending, and debt-service needs. The company reported $2.03bn of variable-rate debt; it estimated a 1 percentage-point rate increase would add about $20.3m to interest expense over 12 months. Swaps entered into during Q3 synthetically fixed $400m of term debt.
Material changes, outlook, and risks
- The $374.3m sale-leaseback gain related to Hard Rock Biloxi and Bally’s Tiverton; the transaction also added $48.5m to minimum annual master-lease payments. The properties’ real estate was added to the GLPI master lease.
- The nine-month effective tax rate was 62.7%, largely reflecting an increased valuation allowance and tax liability related to deferred sale-leaseback gains. The Q3 tax provision was $43.9m despite a pretax loss.
- North America Interactive continued to report segment losses. A January workforce-reduction plan generated $20.7m of nine-month restructuring charges. Separately, a post-quarter plan announced October 20 is expected to incur $15m–$20m of additional charges, primarily technology impairment and severance; actual amounts may differ.
- Bally’s Chicago began temporary operations, while the permanent resort is currently expected to be completed by the end of 2026. The project requires at least $1.34bn of investment; the company also provided a completion-related performance guaranty. Illinois gaming fees of $135.3m were recorded at quarter-end and paid in October using revolver borrowings.
- Management cited organic growth at casino properties and stronger UK performance in International Interactive; it also noted softening consumer spend in Casinos & Resorts. Bally’s expects to begin offering Rhode Island iGaming on March 1, 2024 under a 20-year exclusive-provider authorization. No consolidated earnings or revenue guidance is provided in the supplied filing text.
- Diamond Sports Group’s Chapter 11 litigation names Bally’s in one claim concerning transactions involving Sinclair and alleges fraudulent transfers and unlawful distributions. The case is at an early stage; Bally’s intends to defend the claim. Other stated risks include gaming regulation, competition, integration of acquisitions, inflation and labor costs, foreign-exchange exposure, debt covenants, and interest rates.
- The company has $138.4m of sports sponsorship commitments through 2036 and substantial lease and capital commitments. It reported no material change to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- How much of reported nine-month operating income and earnings reflects the sale-leaseback gain, and how underlying cash generation compares with required capital spending and debt service.
- The effect of the high effective tax rate, valuation allowance, and deferred sale-leaseback tax liability on future earnings and cash taxes.
- North America Interactive’s path to profitability, including the expected costs and benefits of the October restructuring.
- Chicago project funding, remaining construction and license costs, post-October revolver borrowings, and progress toward the permanent resort schedule.
- Lease-related fixed obligations, variable-rate exposure, and the outcome and potential consequences of the Diamond litigation.