Bally's Corp quarterly report, Q1 FY2023

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Bally’s Corporation — Q1 2023 Form 10-Q

Reporting period: Three months ended March 31, 2023. Unaudited quarterly results. Bally’s operates casino and resort properties and North American and international interactive gaming businesses.

Financial performance

  • Revenue: $598.7 million, up 9.2% from $548.3 million. Gaming revenue rose 5.0% to $486.9 million; non-gaming revenue increased 32.2% to $111.8 million. Management attributed growth to casino-property performance and $35.1 million of revenue from recent acquisitions.
  • Profit: Operating income was $376.7 million versus $22.5 million; net income was $178.3 million versus $1.9 million. Diluted EPS was $3.24 versus $0.03. These comparisons are heavily affected by a $374.2 million sale-leaseback gain in Q1 2023.
  • Adjusted EBITDA: $126.4 million, up 10.2% from $114.7 million. Casinos & Resorts generated $73.9 million, North America Interactive lost $10.6 million, and International Interactive generated $80.3 million. These are non-GAAP measures and are not substitutes for GAAP results.
  • Margins and expenses: Gaming expenses were 45.1% of revenue versus 47.4%; general and administrative expense rose to $251.6 million from $187.0 million, or 42.0% of revenue versus 34.1%. The reported 62.9% operating margin (versus 4.1%) includes the sale-leaseback gain and is not indicative of recurring operating performance on its own.
  • Cash flow: Operating cash flow was negative $16.1 million versus positive $20.8 million. Investing activities provided $319.6 million, including $411.0 million of sale-leaseback proceeds; financing activities used $173.6 million, including debt repayments and $19.8 million of share repurchases. Cash and restricted cash totaled $396.9 million at quarter-end, of which $344.3 million was cash and cash equivalents.
  • Debt and liquidity: Long-term debt carrying value, including current maturities, was approximately $3.335 billion, compared with $3.489 billion at year-end. The revolving facility had no borrowings at March 31; its total commitment is $620 million. Operating lease liabilities were approximately $1.225 billion, in addition to a $200 million financing obligation. Current assets were $604.2 million and current liabilities were $658.0 million.
  • Other metrics: Capital expenditures were $43.7 million versus $54.5 million. The income-tax provision was $137.7 million, reflecting a 43.6% effective rate, versus a $5.6 million tax benefit in Q1 2022.

Material changes versus Q1 2022

  • Revenue increased $50.4 million, led by hotel and food-and-beverage growth and recent acquisitions; International Interactive revenue decreased to $245.6 million from $253.1 million.
  • Consolidated Adjusted EBITDA increased $11.7 million. North America Interactive’s loss narrowed by $8.8 million; Casinos & Resorts Adjusted EBITDA was broadly flat.
  • General and administrative expense increased $64.6 million, including higher lease expense, $16.8 million of restructuring charges, higher transaction costs, and expenses from recent acquisitions.
  • Interest expense increased $17.6 million year over year, which the company attributed primarily to higher borrowing rates. The company repurchased and retired $15.0 million of its 2031 notes at an average 70.80% of principal and recorded a $4.0 million extinguishment gain.
  • The balance sheet reflects the January 2023 sale-leaseback transaction for the Tiverton and Hard Rock Biloxi real estate: a $374.2 million accounting gain, $411.0 million of proceeds received in Q1, and higher lease commitments. Minimum annual payments under the GLPI master lease increased by $48.5 million.

Outlook, management commentary, and risks

  • Management said existing cash, operating cash flows, and availability under the revolving facility are expected to be sufficient for operating, capital-expenditure, and debt-service needs. The filing provides no numerical earnings or revenue guidance.
  • Management expects 2023 capital expenditures to be below 2022 levels. Disclosed project expectations include approximately $20 million of 2023 spending at Atlantic City, approximately $50 million for the Kansas City redevelopment with a target completion in the second half of 2023, and a temporary Chicago casino targeted to open by late summer 2023. Permanent Chicago construction is estimated to finish by the end of 2026.
  • Interactive restructuring announced in January included reducing the workforce by up to 15%; Q1 charges were $16.8 million, with $4.9 million remaining accrued at quarter-end. Management cited cost savings and optimized marketing as contributors to improved interactive segment EBITDA.
  • Key exposures include gaming regulation and licensing, competition and integration of acquisitions, consumer spending and labor-cost inflation, and restrictions under debt and regulatory agreements. A 1% increase in effective interest rates was estimated to raise interest expense by approximately $19.2 million over the next 12 months. Foreign-exchange transaction losses were $4.3 million, compared with a $0.2 million gain in Q1 2022.
  • Lease and project obligations are significant: future minimum operating lease payments were $2.374 billion before discounting; the Chicago site agreement includes a $150 million payment due when the Tribune vacates the site by July 5, 2024, with $140 million secured by letters of credit. Legal proceedings are described as ordinary-course matters, with estimated losses not material; the filing says there were no material changes to previously disclosed risk factors.

Important facts for investors to verify

  • Separate recurring operating performance from the $374.2 million sale-leaseback gain when evaluating Q1 earnings, margins, and cash-flow trends.
  • Review debt maturities, variable-rate exposure, facility availability, debt covenants, and the cost and duration of the increased lease commitments.
  • Track whether North America Interactive achieves sustained profitability after restructuring, and whether the reported segment improvements persist.
  • Monitor delivery, costs, and funding needs for Chicago and other capital projects, including the $150 million site payment and casino-related fees.
  • Assess the effect of the elevated effective tax rate, foreign-exchange movements, acquisition integration, and potential dilution from warrants, options, and equity awards.