Bally’s Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Bally’s operates casinos and resorts and North American and international interactive gaming businesses. Results include Gamesys, acquired in October 2021, and other 2021 acquisitions; consequently, year-over-year growth is not a like-for-like comparison.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $548.3 million | $192.3 million |
| Operating income | $22.5 million; 4.1% margin | $29.5 million; 15.3% margin |
| Net income (loss) | $1.9 million; $0.03 diluted EPS | $(10.7) million; $(0.30) diluted EPS |
| Adjusted EBITDA | $115.0 million | $52.5 million |
| Operating cash flow | $20.8 million | $25.9 million |
| Capital expenditures | $54.5 million | $15.3 million |
Revenue increased 185%, with $331.3 million attributed to acquisitions completed after Q1 2021. Casinos & Resorts revenue was $280.0 million and segment Adjusted EBITDA was $73.8 million. North America Interactive generated $15.2 million revenue and $(19.3) million Adjusted EBITDA; International Interactive generated $253.1 million revenue and $73.3 million Adjusted EBITDA.
Operating costs rose faster than revenue, up 223% to $525.8 million. Depreciation and amortization was $78.9 million, including $56.9 million related to 2021 acquisitions, primarily Gamesys. Advertising expense was $65.3 million versus $1.4 million, including $63.1 million for interactive operations. Interest expense increased to $45.8 million from $20.8 million. A $13.4 million gain from a lower estimated Sinclair performance-warrant liability reduced other expense; the comparable 2021 period included a $25.9 million expense from a higher estimate.
Liquidity, debt and cash flow
At March 31, 2022, cash and cash equivalents were $160.8 million and restricted cash was $62.9 million. Cash and restricted cash totaled $223.7 million, down $51.2 million from year-end. Current assets were $510.9 million and current liabilities were $528.8 million. Operating cash flow of $20.8 million was below investing cash outflows of $72.0 million, which included capital expenditures and $15.0 million for internally developed software.
Debt carrying value, including current maturities, was $3.47 billion: $1.94 billion term loans, $110.0 million revolver borrowings, and $1.50 billion senior notes. Approximately $510 million of the $620 million revolving facility was undrawn, before considering applicable terms and conditions. Operating lease liabilities were $526.8 million. The company reported $67.0 million cash interest paid during the quarter. It estimated that a 1 percentage-point increase in effective interest rates would increase interest expense by approximately $19.5 million over the next 12 months.
Material changes, outlook and risks
- Management said properties were operating at full capacity with minimal restrictions, versus capacity and service restrictions in Q1 2021. It attributed improved results to reopening, stronger visitation and acquisitions.
- Management expects 2022 capital expenditures to exceed 2021 levels. Planned spending includes approximately $50 million at Twin River, $40 million at Atlantic City and $50 million at Kansas City; construction in Centre County, Pennsylvania, was expected to begin in the second half of 2022. These are project estimates, not earnings guidance.
- The company expected to complete its approximately $300 million Tropicana Las Vegas acquisition during 2022 and anticipated funding the $150 million non-land asset purchase through sale-leaseback arrangements. On April 1, 2022, GLPI completed a $150 million sale-leaseback of the Quad Cities and Black Hawk properties; the properties were added to the master lease with initial annual fixed rent of $12 million.
- Variable-rate debt, foreign currency exposure—particularly GBP—and acquisition integration are material risks. A $71.5 million foreign-currency translation loss reduced comprehensive income in Q1. Management cautioned that COVID-19 developments could again affect operations, demand and construction.
- The February 2022 Rhode Island regulatory agreement imposes operating and governance requirements and restricts certain actions, including restricted payments and additional debt if its specified leverage ratio exceeds 5.50 to 1.00. Debt agreements also contain covenants. The revolving-credit leverage covenant did not apply at quarter-end because revolver borrowings were below its trigger.
- The company reported a $5.6 million income-tax benefit, including a one-time $4.9 million benefit at Gamesys entities. Management stated it did not intend to pay common-stock dividends in the foreseeable future. It repurchased $13.3 million of shares in the quarter.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting. It reported ordinary-course legal proceedings, with estimated loss accruals not material at quarter-end.
Important facts for investors to verify
- How much of reported growth and Adjusted EBITDA reflects acquired businesses, and how comparable are segment results after the acquisitions and segment changes?
- Whether interactive customer-acquisition and advertising spending can produce sustainable profitability, particularly given North America Interactive’s $(19.3) million Adjusted EBITDA.
- Debt-service capacity under higher interest rates, remaining revolver availability, lease commitments and planned capital spending.
- Progress, final costs and funding for Tropicana Las Vegas, Centre County and the stated property renovation projects.
- Potential dilution from warrants, options and contingent share awards; the filing lists approximately 14.6 million potential incremental shares, subject to conditions.