Bally’s Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results. Bally’s operates casinos and resorts alongside North American and international interactive gaming businesses. The October 2021 Gamesys acquisition substantially changed the company’s scale and business mix, limiting direct comparability with 2021.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $552.5 million | $267.7 million | $1,100.8 million | $460.0 million |
| Income from operations | $85.3 million | $80.5 million | $107.8 million | $110.0 million |
| Net income | $59.5 million | $68.9 million | $61.4 million | $58.2 million |
| Diluted EPS | $0.98 | $1.40 | $1.02 | $1.37 |
| Adjusted EBITDA | $141.2 million | $82.8 million | $256.2 million | $134.7 million |
| Operating cash flow | — | $164.5 million | $34.2 million |
Revenue and margins: Q2 revenue rose 106.4%; management attributed growth to acquisitions, fewer pandemic-related restrictions and improved consumer confidence. Gamesys contributed $221.5 million of Q2 gaming revenue in International Interactive. Casinos & Resorts revenue was $299.9 million, while North America Interactive revenue was $18.1 million. Q2 operating margin was 15.4%, versus 30.1% a year earlier; the company cited acquisition-related costs and higher operating expenses, including increased depreciation and amortization. Q2 net income fell 13.7% despite revenue growth. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP earnings.
Segment performance: Q2 Adjusted EBITDA was $88.0 million for Casinos & Resorts, down from $91.8 million; negative $17.0 million for North America Interactive, versus positive $0.1 million; and $82.6 million for International Interactive, reflecting Gamesys. North America Interactive losses were attributed mainly to increased operating costs.
Financial position, liquidity and cash flow
- At June 30, cash and cash equivalents were $176.2 million; restricted cash was $55.2 million. Cash and restricted cash totaled $231.4 million, down from $274.8 million at year-end 2021.
- Long-term debt, including current maturities and net of discounts and fees, was $3.356 billion. The company had $1.94 billion of variable-rate debt outstanding and no revolving-credit borrowings at June 30; its revolving facility commitment is $620 million.
- Operating lease liabilities were $668.7 million. Future minimum operating lease payments were $1.049 billion, before a $380.7 million present-value discount.
- First-half investing cash outflow was $55.8 million, including $116.1 million in capital expenditures and $31.5 million for internally developed software; $150.0 million of sale-leaseback proceeds helped offset outflows. Financing cash outflow was $140.8 million, including $204.7 million of debt repayments.
- Shareholders’ equity was $1.418 billion. Foreign-currency translation losses reduced equity, with accumulated other comprehensive loss increasing to $340.1 million at June 30.
Material changes, outlook and risks
- Acquisitions and comparability: 2022 results include Gamesys and other 2021 acquisitions that were not included for comparable portions of 2021. The company said 2021 acquisitions contributed $281.8 million of Q2 2022 revenue and $613.1 million in the first half.
- Unusual items: Q2 included a $50.8 million gain on the sale-leaseback of Bally’s Black Hawk and Quad Cities real estate. The comparable 2021 quarter included a $53.4 million sale-leaseback gain and $24.1 million in bargain-purchase gains. These items affect period comparisons.
- Management outlook: No quantified earnings or revenue guidance was provided. Management expected 2022 capital expenditures to exceed 2021 levels, citing projects at Twin River, Atlantic City and Kansas City, as well as maintenance and improvements. First-half capital expenditures were $116.1 million.
- Projects and financing: The company expected to acquire Tropicana Las Vegas in 2022 for $150 million for non-land assets, with the land to be leased. It also announced a proposed $635 million sale of real estate at Hard Rock Biloxi and Tiverton to GLPI, with an option for GLPI to acquire Twin River real estate for $771 million; the transactions were subject to approvals and consents. Bally’s Chicago is a planned $1.7 billion resort project; the company made a $40 million upfront payment and provided a performance guaranty to the city.
- Key risks: Variable-rate debt exposes the company to higher interest expense; management estimated a 1 percentage-point rate increase would add approximately $19.4 million to interest expense over the next 12 months. Other disclosed risks include foreign-currency movements, acquisition integration and execution, gaming regulation, competition, COVID-19 uncertainty, project costs and lease obligations. Management said existing cash, operating cash flows and revolver availability were expected to meet operating, capital expenditure and debt-service needs.
- Subsequent event: On July 27, 2022, the company repurchased approximately 4.7 million shares for $103.3 million, funded with cash and revolver borrowings. No dividends were paid in the first half; management said it did not currently intend to pay dividends in the foreseeable future.
- The filing reported no material changes to the company’s previously disclosed risk factors. Management concluded disclosure controls were effective as of June 30, 2022.
Important facts for investors to verify
- How much of reported growth and Adjusted EBITDA reflects Gamesys and other acquisitions versus underlying comparable operations.
- Whether North America Interactive can reduce its operating losses and advertising and launch costs.
- The company’s debt, variable-rate exposure and liquidity after the July share repurchase and any subsequent revolver borrowings.
- Approval, financing, lease terms and execution risks for the GLPI transactions, Tropicana Las Vegas, and Chicago and other development projects.
- The effect of sale-leaseback gains, acquisition-related amortization and foreign-exchange movements on future GAAP earnings and equity.