Bally's Corp quarterly report, Q2 FY2021

Bally’s Corporation — Q2 2021 Form 10-Q

Reporting period: Three and six months ended June 30, 2021. Bally’s operates land-based casinos and hotels and is expanding its sports betting, iGaming and interactive businesses. Results reflect casino reopenings and a substantially larger portfolio following multiple acquisitions.

Financial performance

Q2 operating margin was approximately 30.1% and net margin 25.8%; six-month operating margin was approximately 23.9% and net margin 12.7%. Revenue rose 825.6% for Q2 and 233.2% for the first half, but comparisons are heavily affected by 2020 COVID-related property closures and acquisitions completed since then. Management said gaming revenue grew and in some cases exceeded pre-pandemic levels as restrictions eased and visitation improved.

Q2 revenue included $105.4 million from acquisitions completed in the second half of 2020 and $29.2 million from first-half 2021 acquisitions. Q2 results also included a $53.4 million gain on the Dover Downs sale-leaseback and $24.1 million of bargain-purchase gains from Tropicana Evansville and Bally’s Lake Tahoe. These items, along with insurance recoveries and fair-value movements, affect comparability with underlying operating performance.

Cash flow, debt and liquidity

• First-half operating cash flow: $34.2 million, versus cash used of $16.4 million in the prior-year period.
• Investing cash flow: $379.7 million used, including $332.0 million of acquisition payments and $35.8 million of capital expenditures.
• Financing cash flow: $1.09 billion provided, principally from $667.9 million of equity issuance proceeds, $144.0 million of Dover Downs sale-leaseback proceeds and borrowing activity.
• Cash at June 30: $195.8 million unrestricted cash and $677.8 million restricted cash; most restricted cash related to the Gamesys transaction. Total cash and restricted cash was $873.7 million.
• Debt: $1.334 billion net carrying value, including $275 million drawn on a $325 million revolving facility, $566.3 million of term-loan principal and $525 million of 6.75% senior notes due 2027. The revolver had $50 million undrawn. Reported debt excludes lease liabilities.
• Leases: Operating lease liabilities were $528.0 million, up from $63.5 million at year-end, largely reflecting acquired properties and the GLPI arrangements.
• Net working capital was $841.4 million; its increase primarily reflected equity proceeds restricted for the Gamesys acquisition, rather than freely available operating liquidity. The company reported compliance with debt covenants at quarter-end.

Material changes and transactions

• Properties had returned to full capacity with minimal restrictions by June 30, 2021, although the pandemic remained ongoing.
• Completed acquisitions during the period included SportCaller, Monkey Knife Fight, Bally’s Interactive (formerly Bet.Works), Bally’s Lake Tahoe, Tropicana Evansville and Jumer’s. The company also acquired AVP on July 12, after quarter-end.
• The Gamesys acquisition was approved by both companies’ shareholders on June 30, subject to regulatory approvals and other customary conditions; Bally’s expected closing in Q4 2021. The stated financing plan included cash, equity proceeds, new credit facilities and bond issuance. Bally’s had paid $22.6 million in premiums on foreign-exchange contracts intended to hedge purchase-price and debt currency exposure.
• In August 2021, after quarter-end, Bally’s obtained commitments for up to $2.57 billion of proposed secured credit facilities and agreed to a private placement of $1.50 billion of senior notes, subject to conditions.
• The Dover Downs property was sold to GLPI and leased back. The related master lease also covers Tropicana Evansville real estate and requires combined minimum annual payments of $40 million, subject to escalation, over an initial 15-year term.
• Rhode Island legislation extended the master contract through June 30, 2043 and committed Bally’s to invest $100 million in the state over that term. It also authorized a proposed IGT joint venture to supply VLTs from July 2023.

Outlook, risks and unusual items

Bally’s gave no specific earnings guidance. Management said current liquidity, operating cash flows and credit-facility borrowings were expected to fund operations, capital needs and debt service for the next 12 months, including pending acquisitions. That assessment is subject to pandemic-related uncertainty, acquisition completion and financing conditions, debt restrictions and the company’s ability to access capital.

Planned spending includes a $40 million Bally’s Kansas City redevelopment, a $100 million Atlantic City investment over five years, the Rhode Island commitment and a proposed $120 million Centre County, Pennsylvania project. Management cited integration costs, rapid growth, competition in digital gaming, regulatory requirements, debt restrictions and uncertain post-pandemic demand as risks. Q2 included $18.4 million of acquisition, integration and restructuring costs; first-half costs were $30.7 million. A $4.7 million impairment charge followed rebranding decisions. The filing reported no material change to previously disclosed risk factors; pending legal matters were described as ordinary-course proceedings with estimated losses not material at the filing date.

Important facts for investors to verify

• Whether Gamesys received required regulatory approvals, closed on expected terms and achieved anticipated integration and financial benefits.
• How much reported earnings and cash generation depend on acquisition growth and nonrecurring gains, and how Adjusted EBITDA reconciles to GAAP results.
• How much cash is unrestricted and available for operations after escrow and other restrictions, and the final terms and cost of acquisition financing.
• Whether property demand and operating performance remain strong as pandemic conditions and customer behavior change.
• The full impact of lease commitments, planned capital spending, Rhode Island obligations and potential dilution from equity, warrants and acquisitions.