Q3 2021 Bally's Corp Earnings Call
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Okay, and thank you for standing by.
Until the Palace Corporation third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session in order to ask a question. During this session. Please press the star key followed by the number one on your telephone please be advised that today's conference is being record.
If you require further assistance. Please press Star then zero I would now like to turn the call over to Bobby Lavan.
Senior Vice President Finance and Investor Relations for Fat for valleys. Please go ahead Sir.
Good morning, everyone and thank you for joining us on today's call the earnings release and presentation that accompany this call are available in the Investor Relations section of our website at www dot valleys Dot com.
With me on today's call are Lee Fenton, Chief Executive Officer, George <unk>, President retail Robeson, Reeves, President interactive and steep cap Chief financial Officer.
Before we begin we'd like to remind everyone that comments made by management today will contain forward looking statements.
These forward looking statements include plans expectations estimates and projections involve significant risks and uncertainties. These risks are discussed in the company's earnings release and SEC filings actual results may differ materially from the results discussed in these forward looking statements.
In addition, during today's call management will refer to certain non-GAAP financial measures reconciliations to the most comparable GAAP financial measures are included in the schedules containing our earnings release.
We do not provide a reconciliation of forward looking non-GAAP financial measures due to our inability to project special charges within certain expenses.
Today's call is also being broadcast live on our Investor site will be available for replay shortly after the completion of this call and now I'll hand, it over to Lee.
Thanks, Bobby Good morning, everyone and thank you for joining us.
Joining me today from our Shreveport casino in the great state of Louisiana, and could not be happier to be here.
Welcome to all our investors and other stakeholders I'm excited to start our journey together to build an outstanding Global Gaming Entertainment company.
Valleys closed the acquisition of games is on October one and I've spent time with some of you discussing the strategic priorities and direction of our business today's call. We will give you some further insight into our revolving roadmap and expectations going forward.
The past two years have seen large steps forward in our strategic direction and pallet.
We want to simplify the story to focus on our key competitive moats, namely we have strong cash flow fully owned technology high awareness of the bally's brand and market presence that gives us access to millions of customers.
Just one year ago, we were named Twin River and have a 750 million market cap. Since then we've changed our name to valleys closed on multiple retail casinos struck a strategic deal with Sinclair to rename all its regional sports networks to finally schools acquired the sports betting engine and done the trans.
Formative deal with games is to give us access to I gaming and deep experience in digital.
And in management talent.
Our market cap is now more than $3 billion and yet we think we are just beginning.
Starting with the upcoming fourth quarter and into 2022, we will operate and report the business through three segments.
Firstly retail comprised comprising our current 14 casinos in 10 states, we will be providing more information early next year on a newbuild in Pennsylvania plans for our acquisition of Tropicana, Las Vegas, and I propose built in Chicago.
Our second segment will be international Interactive. This includes our market, leading our gaming operation in the U K and Asia as well as smaller markets in Europe and rest of the world.
Third segment will be North America interacted. This segment will combine a collection of digital assets acquired over the past two years, including bet don't work as well as the games as technology to provide a unique data driven product in OSB in our casino into behind drove North American market that includes the U S and Canada.
This segment also includes market access to five states. In addition to our existing retail casino footprint.
The strategic rationale to bring balanced in games is together was to leverage games has proven technology and knowhow to turbocharge valleys Omnichannel gambling platform in North America, while continuing to grow interactive revenues internationally.
The retail casinos are a scale casino footprint with meaningful cash flow generation and market access brand awareness in play of databases.
International Interactive will continue to grow while providing the business scalability on technology resources as well as strong earnings flow through.
North America interactive is in the early stages of what I believe will be tremendous growth and with the free cash flow generated by retail casinos and international interactive we will have ample cash on hand to invest into that opportunity.
There are lots of moving parts. So let me start to try and simplify the story.
Retail casinos, excluding Atlantic City run rates of approximately $450 million of adjusted EBITDA, which include which excludes rent rental expense currently stand at $46 million per year.
International Interactive Annualizing for this quarter is doing approximately $330 million of adjusted EBITDA.
Corporate expense is 40 million and we'll see some upward pressure from market factors, including insurance and gross hiring.
Our new debt stack is 344 5 billion with cash interest expense of $165 million, which is an average cost of capital sub 5%.
Maintenance Capex for the new entity is $80 million when you add all of that up before investments in North America interactive growth Capex at retail casinos will share buybacks, we have north of $400 million of pre tax free cash flow to invest to drive shareholder value.
Assuming a 25% tax rate and 68 million shares which includes common shares outstanding full dilution of warrants options and other contingent consideration were around $5 per share of free cash flow.
We will continue to evaluate investments that drive shareholder value.
Games. This we built a strong track record of creating shareholder value and that's exactly what we intend to do here. We are committed to taking a $5 per share free cash flow and investing in growth of the processes buying back stock and most importantly, investing in North America interactive.
We ran gains with strict CAC and LTV metrics and although it's early days. Our initial analysis indicates we will be in a competitive position investing near 20% of pre tax free cash flow into the North America Interactive segment in the near term.
Visa and that spending will be success based and grounded in strict metrics.
Or is that we will spend more.
Looking to results for the third quarter I will discuss the results of BIOLASE cool and games separately.
Highlights Corporation had a record revenue with $350 million of sales and $78 million of adjusted EBITDA.
Retail casinos have $302 million of revenue and $106 million of EBITDA excluding rent.
The quarter was negatively impacted by approximately $6 million EBITDA.
A natural disasters, including two hurricanes and wildfires in Nevada.
Excluding Atlantic City, which I will touch on later revenues of $260 million.
3% to the comparable period in 2019.
Adjusted EBITDA, excluding rent, adding back four 6 million and natural disaster impacts was $109 million compared to $79 million in 2019.
This equates to a 42% property EBITDA margin in <unk>.
31% in 2019.
In a normalized post COVID-19 environment, we expect EBITDA margin to normalize mid to high thirties.
A few notes on the provinces in the quarter demanded Lincoln for table games justified opening the hotel, which we did not want Teva warranted, we will continue to take a conservative approach to bringing back a minute.
Atlantic City reported a positive $3 million of EBITDA that doesn't the previous quarters, but still below expectations.
We expect Atlantic city to have full year losses.
Ultimately 12 million.
Reviewed the Capex program and believe in the long term potential but it will be 2023 before we have a full year positive EBITDA from the property.
The journey, we're on Mcdonald's I say, it's very comparable to our investment in pivotal.
Over 12 months to get it right, but ultimately a $100 million plus investment activity.
That's been a runaway success.
Additionally, the IC property will be heavily focused in 2022 to support our online casino launch now I will discuss shortly.
Our program to rebrand the retailer state accelerated in the quarter.
All properties step and rebrand it by the end of the year.
And upon the Shreveport that was I would rather when I walked in the door just a few days ago.
This panel changing investment.
And will be a tailwind for the entire group into 2022.
Net net the retail casinos delivered a record quarter with adjusted EBITDA, Excluding Atlantic City.
<unk> 6 million for natural disaster impacts up 39% over 2019.
July was an exceptional performing month was a step down in August and early September primarily from natural disasters.
Proved into October.
We expect to maintain recent margin improvements offset moderately by increased labor rights in 2022.
Moving to North America interactive in the quarter, we had $11 4 million of revenue and $5 5 million of EBITDA losses. This is in line with our expectations as we continue to invest in brand awareness customer.
Customer in customer engagement through free to play as well as the development and integration of the pet thought works in games this technology stack.
In the quarter, we closed on acquisitions of the association of vulnerable professional and telescope.
Our awareness content and consumer engagement efforts.
Post the quarter close we acquire degree 53, having served the expertise to a sports front end development.
Right now probably interactive has four priorities.
Firstly to drive awareness of the <unk> brand, a local level using proprietary assets and partnerships building structural cost advantages relative to the competition.
Secondly to launch online casino in OSB products.
By our customers.
Thirdly for interactive teams to work hand in glove with our retail colleagues to leverage our footprint and deliver an omnichannel experience.
Relevant and finally ramping to the customer.
Lastly to develop content in consumer programming that creates unique opportunities for customer engagement with the <unk> brand on a daily basis.
In the quarter, we made good progress on our App launches.
Launched finally, I'd like to see them in New Jersey before the end of the year. We are currently like we finally about one zero out in Colorado, and Iowa in the coming months, we will launch in Indiana.
Virginia in beta phase.
A significant focus on the launch of finally back to zero in the first half of 2022.
This new App, you will see us play to our strengths as we integrate the thought would be to be spooked by an engine.
<unk> features <unk> technology data driven experiences and scalable play a large cycle management tools.
The valley back to launch first in Arizona focus on our core sports experience, but once deployed that will help to scale quick up across multiple states and we will update on that progress over the coming months.
Brand awareness is strong and improving through the visibility given the cross valley spool for free to play offered through a phone call a business and our daily fantasy business Monkeynomics fine.
Now available in 38.
Eight states.
Moving on to the performance of the games business in the quarter. As a reminder, we closed the acquisition of games. This on October one revenue and EBITDA was a record performance on a constant currency basis revenue was $279 million and EBITDA was $84 million.
Revenue increased 6% year on year, while EBIT dollars increased 7%.
UK revenues increased 9% and Asia increased 10%, while Europe was down 25% ex.
<unk> take noncore markets in Netherlands, and Germany, due to regulatory changes that accounted for 200 basis points of headwinds in the quarter.
In the UK active users were up 3% only gave prior our transition of the home finger proposition to double bubble bingo in September has been well received by the market with us retaining in excess of 95% revenues and growing.
And it gives us an improved trademark license right and a 10 year term for the brand.
Average site size in the UK in the quarter was 85 <unk> compared to 86% in the.
The year prior.
Stateside and slots for the quarter was 70 576.
70, 610, a year prior.
We continue to believe that the average sized customer profile responsible gaming standards and our lack of dependence on VIP business puts us in a favorable position.
<unk> progresses.
The gambling Act review.
We have always been and will continue to be the lead our best practices in the market.
In Asia active users were up 47% year on year, a strong growth comes from localized games and market leading customer acquisition practices.
We continue to enhance our offering in Asia, most notably with daily free games increased reach and frequency with more.
More exclusive content to enhance retention and extending our customer service hours to 24 seven.
Our approach to customer service is unique in the market.
Distribution costs, which is variable costs, including marketing licensing gaming tax in processing fees was 53, 7% net revenue versus 53, 8% year prior administration costs, which are fixed costs, including compensation professional fees and G&A.
<unk> was 16, 2% of net revenue same as in the same quarter in the prior year.
The games business has a very predictable cost structure, and we will look to maintain that going forward.
Just to be paid of $84 million is a record for the company and a good benchmark for profitability for the into the into the future.
Prior to handing it over to Steve I, just wanted to leave you with a few more points.
In the U K games. This is growing from a nine 6% market share in 2016.
33% market share in 2021.
This was the best market share growth with any of our peers. This growth came from being a data company using analytics to drive best in class LCP determinations, which leads to better decision, making on cat and lifecycle management to lower churn.
We will deploy all these tools into the North America interactive environment.
Another key factor in growth with customer Centricity, we do not need to be first to market with an inferior product customers will always have choices and we will take a customer centric view of our products.
We will launch when the product is right and we are willing to see short term guidance long term trust and value.
Analytics and lifecycle management will be important to North America interactive, but will also apply to retail.
And we are starting to implement new technologies into the casino, but better marketing analytics and driving a true omnichannel experience.
The <unk> brand is very recognizable and it's critical for us to continue to build the awareness and the relevant brand.
My time at games has sold the company to become a leader in the UK and sustainability responsible gaming and being at the forefront of ESG in the industry.
First months families. We've hired group heads of sustainability.
Diversity and inclusion these issues to the forefront of our minds, particularly as more focus is put on the north American gaming industry with the growth of online gaming.
Finally, I get the panelist story has been complex up to now due to the incredibly fast growth of the group through multiple acquisitions.
And Joel to simplified story for investors clarity on the numbers and the roadmap and execute very tangible progress through 2022 to create long term value with that I will pass to Steve who will provide some incremental color on the quarter.
Thanks, Lee very glad to be here with you today.
Good morning, all thank you for attending the call for the third quarter, we reported adjusted EBIT dollar margins for retail casinos of 34, 9%. This includes the aforementioned $6 million of headwinds from natural disasters as well as Atlantic City, which while in positive territory only deliver.
Six 5% EBITDAR margin in the quarter.
North America Interactive EBITDA was negative $5 5 million.
Adjusted corporate expense was $11 1 million in rent was $11 4 million, which leads to adjusted EBITDA in the quarter of 78 million.
Yeah.
Going forward, we will report.
Retail casinos as EBITDAR that of course is EBITDA before rent again, our triple net rent in the quarter was 11 4 million.
Our North America interactive business delivered approximately $11 million of net revenues in the quarter with $5 5 million of negative EBITDA. This was in line with our expectations and we expect this to continue to grow quarter over quarter going forward as Lee has already mentioned.
On the Capex front, we expect requirements to increase as a result of the properties acquired in the last 18 months.
For the first nine months of this year Capex was approximately $66 million we.
We expect Capex to continue to ramp into for Q2 'twenty. One we expect the consolidated group to spend $40 million to $50 million of Capex per quarter through the end of 2022 and moving forward of course, our approach to maintenance and growth capital investment will continue to be focused and disciplined.
We closed the <unk> acquisition on October one that reset our balance sheet, our new capital structure includes a $1 $94 $5 billion term loan.
And one 5 billion of unsecured notes split equally between eight and 10 year tranches as.
As well as the <unk> $620 million revolver, which revolver was undrawn at the transaction closing.
Our structure is covenant light with minimal amortization, allowing us to focus on growth in the coming years and to utilize a substantial free cash flow and an ongoing capital allocation methodology.
As part of the games just acquisition, we issued games to shareholders $9 8 million shares of Bally common stock.
Starting in 2022, we will calculate adjusted EPS, assuming all warrants and options are converted to focus investors and management on adjusted cash EPS.
We have added information to the press release and Form 10-Q.
Which are or will be available on our investor relations site that should help analysts and shareholders model the business going forward total.
Total shares outstanding for that purpose is $68 3 million, which includes.
Warrants and shares issuable to Sinclair and other contingent investments.
Thanks for tuning in this morning, we appreciate your time and with that I'll hand, it back to Lee.
Thanks, Steve.
So in summary.
Pleased to have achieved solid quarterly results, while expanding and diversifying our collection of land based and digital gaming assets.
We continue to evolve as a company and position ourselves to capitalize on favorable industry trends we.
We are confident that the closing of the games as Dale will drive a unique business proposition as we enter 2022.
Don't forget that the games as founders me and my management team rolled out stocking to the company because we believe in the upside opportunity and we'll be investing at free cash with shareholders mentality.
That concludes our prepared remarks for this morning, I'll now ask the operator to open the line for questions.
At this time, if he would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing.
Once again that is star one if you would like to ask a question.
And we will take our first question from Jeff Jeff standout with Stifel. Your line is now open.
Hey, good morning, everyone. Thanks for taking my question and Lee, it's going to be hearing from you on this call.
I wanted to start on the North America Interactive Division you know as we look out to 2022, you're going to be looking at one to two quarters with valley that one point I'll call. It two to three a 2.0 and if you think about ground running with a full marketing program in App. Just how are you thinking about potential revenue contribution from that segment in 2022.
And any thoughts around how market share plays into that relative to your previously stated 10% target would be helpful as well.
Hi, Jeff Thanks, very much.
We we actually walked away from that 10% target some time ago.
But we have been obviously looking and analyzing the market in terms of how we can enter.
Probably about one those areas very much be a product the big focus on <unk>.
Back to zero and getting out the door because I think that combines the best of all the technology that we've got.
We've talked about the kinds of investments that we intend, making through 2022 and I think that will continue with a 20% pre tax free cash flow level into 2023, as well and revenue to <unk>.
Spec to be north of $125 million in North American interactive in 2022.
Okay. That's really helpful. And then just for my follow up I wanted to drill into the games. This tech stack to be integrated into Bali that next year. We're just looking at a pan we heard them talk about some internal investment into technology really focusing on improving player level of customization and the Pam and this didn't stand out a bit given I recall, it as being a key folk.
Based on the merger call back in April since we now have the luxury of hearing from you directly on this call I was hoping you might share some thoughts on how you see the gains as tech stack position here relative to some other players in the U S that might be playing a bit of a catch up in certain ways.
But I think the.
The way that we've tried to uniquely position ourselves in other markets has always been about the full personalization of customer journey.
So to ensure that we're putting either the right that so the right games in front of the right player at the right time on the right device and to make sure that your experience as Jeff is different to my experience at le entering into any of those apps and it's that kind of managed choice managed experience.
That we believe customers value, particularly over time, you, obviously need to cover that with.
You know a good brand to put behind it to build trust into it and to make sure that you deliver it with excellent customer service.
The technology really is all about how we can action our data to deliver a very tailored customer journey.
Okay, great very helpful. Thanks for taking the call here and I'll hop back in the queue.
Yes.
And we will take our next question from Barry Jonas with Truest. Your line is now open.
Great. Thank you.
Li notwithstanding walking back from the 10% target I wanted to focus on gaming you've had success there with the Tropicana App and as we think about the impending launch and ramp in the state.
What are your expectations, there for I gaming and maybe beyond Jersey overtime.
Hi, Barry Good morning. Thanks for the question I think we've actually probably discussed before.
In New Jersey.
I've used the phrase that we've been operating with kind of one hand tied behind our back we didn't have the the luxury and the opportunity of the above.
Our casino database to leverage and that casino footprint too.
To help us along the way if you like.
We've had six point share, albeit one of those brands over time will go away from us and Tropicana, but we will have Virgin and we will have the bally electricity after launch.
Would be disappointed if over time, we would be seeing the share that we have previously based on the fact that I said, we had one on on beyond that and delivering that so how quickly we can get that.
I wouldn't like to comment on them right now, but I would expect to be above $6 five shot.
Great and then just wanted to touch on gave us just a little bit.
Definitely helpful color, but can you talk about sort of your expectations around growth in the various segments. I know, we've got a U K regulatory review coming up but curious to get your overall thoughts there.
I mean this is the U K regulatory review as a gambling Act review, but theres been regulations over the last six years dropping into the U K market. What we've seen is that every time there has been additional regulations dropping into the UK market, we've actually managed to increase <unk>.
Yet, we see regulation as opportunistic right I think that.
It's really about the way that you execute.
New regulations at least bring a level playing field.
To many of the dynamics in every single time, we've seen that in the U K over the last six years, we've inched forward over time.
The Asian market keep saying, it's been one of our most stable regulatory environment for the last six to eight years with not much happening there tool obviously in Japan, There's a focus on integrated casino resort.
Any regulation for online gaming I think as probably many years down the line. So we don't see anything changing that on the gambling Act specifically looks like the white papers now kicked into 2022, but as I said on the prepared remarks, you know, we think the broad base of customers.
Our LOE are.
Relatively low stating customers and our activity around RG, which has been in place for many years will leave us well positioned.
Perfect. Thanks, Mike.
Thank you.
And we will take our next question from Lance Vitanza with Cowen. Your line is now open.
Hi, Thanks, Thanks, it's pleasure.
My first question is on the North American interactive side.
I heard you mentioned a moment ago lead the $125 billion revenue target for 2022, but what about on the cost side I mean, I would think you could spend twice that much in 2022 as you invest for growth and I may have missed this so I apologize, but did you say at what point you would expect in a interactive to become.
EBITDA positive on its own.
No I didn't but thanks for the question.
Okay.
No. We haven't said that now what I said is we.
We will expect to invest against North American interactive, 20% pre tax free cash flow.
And I see that in 2022, and I see that continuing into 2023, I think let us get the asps have a door, let us build into a little bit of market share understand what our marketing dynamics alike.
I'll be in a much better position.
Probably towards the end of 2022 to give you a point of view on when we see this turning positive.
Fair enough and then my other question is with respect to the New York.
Gaming opportunity and the partnership strategy that you chosen there I'm wondering if you could talk I know, maybe it's a little premature, but how do you feel about your prospects. There in terms of whether you are selected profitability. If you are selected and timing of a decision from the state.
So we're hopeful that we'll get timing.
We will get the decision decided the yeah.
We're hopeful that that will come in December I've seen some reports that might come earlier.
Let's see.
We're comfortable with our position and with the group that we've been working with to ensure that we have access no. One is happy with a 51% tax rate.
I think that would be true for all of the partners that we've been working with as well.
It's a huge state and therefore, you know the scale of it means that you can have opportunities. We also have some opportunities with.
Some of the Sinclair programming that we can leverage.
In the outskirts of the state as well. So obviously I think it will change the cost dynamics of all operators to enter that market.
In terms of how they might address and attack that market, but clearly New York is not a market that you want them at Samsung.
Understood. Thanks, so much for your help.
Thank you.
And we'll take our next question from Dan Pulitzer with Wells Fargo. Your line is now open.
Hey, good morning, everyone and thanks for taking my questions. So the first one just on sports betting and gaming is it reasonable to expect that your share of I gaming would exceed that of sports betting just given the game. It's this core competency is kind of the backbone for the I gaming component.
And I don't think Thats, a given to be honest Stan.
We're working extremely hard on the sports betting products that will come to market.
In the first half of 2022, we've got some incredible talent.
Work, which will provide an engine.
Games has actually doubled in the sports betting market previously.
In the U K and we've got some incredible new talent as well on the product side, which we think will give us a.
Excellent.
Yeah.
That into the market with the value back to zero at so I'm definitely not giving that as a given the I gaming is naturally going to be ahead.
And obviously, we would love more states to have by sports betting and online gaming because that that enhances the opportunity for everybody and we think we would be extraordinarily well positioned where the two products both of it I'm very optimistic about our.
Two zero App and having seen a lot of the work that's been going on I would hope that it can perform as well as our I gaming at.
Got it and then just for my follow up to what extent if any do you anticipate valley that could be impacted by the Sinclair RSA and uncertainty I know that the T sport bonds are trading at distressed levels. So is there any impact of read through there in the event that.
There is a credit event with diamond.
Well I think.
I don't want to comment on the diamond situations, specifically, but you know we think we bring a lot of value to valley sports today are not only it was only going to continue to build over time.
Great relationship with Sinclair today, but if it if there's all of a sudden assets end up on the other ownership in the future.
We still believe that will bring a great deal of value for them.
To whoever has that in the future if that was to be the way. It when I remember also the tennis channel local television stations in stadium at all kind of outside of that diamond structure. So it wouldn't all go away as well, but you know we value the partnership we have that if it.
Were to change hands, we'd looked at whether or not we can find a valued partnership.
Under a new owner.
Got it thanks for all the color and best of luck in your new role.
I appreciate it.
And we will take our next question from David Katz with Jefferies. Your line is now open.
Hi, Good morning, everyone. Thanks for taking my questions I wanted to go back to I know you touched earlier on the Chicago good.
Could elaborate just a bit on how management thought about its pursuit.
What success would look like.
More broadly speaking, how you're thinking about investing capital in the land based.
Portfolio next year or two.
Thanks.
Hi, David Thanks for the question.
You know the company has been following with entrust Chicago for some time and that obviously predates me.
Our interest became very serious when the city moved to rationalize the tax structure.
I think we've got a very comprehensive plan that we're proud of the George has been dealing with much of that plan over a much longer period. So maybe George can you comment to Chicago and in the future Capex investments sure. So thanks for the question David.
We felt we felt Chicago would be a perfect location for us to position. This property is really a centerpiece of our national portfolio.
We view this as a tremendous cross marketing opportunity.
It would be very attractive to our large and growing regional database customers.
And we've taken a very measured approach to development.
The city has been put out.
Anything related to our RFP, yet, but we're taking a phased approach.
To the to that property, so we understand really what the.
With the levels of Oh visitation would be in that market. So.
As far as.
So you'll see a highlight number of a $1 6 billion, but that's that's after the first phase, which is a temporary a temporary casino as well as the phase one of the projects, which would include the hotel room product and a substantial substantial gaming PC gaming space.
<unk>.
We factor in.
Both of the sites that we've identified.
We feel that it's.
I'll throw him a density of population.
And then when you add Chicago, two really is that one of the top international destinations for tourism conventions Tradeshows and we believe this could be again, a centerpiece of our portfolio, where we have a high level of confidence that it will.
Produce an appropriate return.
Our investment.
Okay.
And the second thank you for that and the second part of my question was really around the land based portfolio and how you're thinking about capex and investment.
Are there.
So the three capex programs, which are running at the moment in Lincoln, Kansas City in Atlantic City will all roll out over the course of 2022.
You can start to see us get the full benefit from those in 2023.
But that that progressing.
At a pace, which we are comfortable with I'd say that Atlantic City is a little bit behind where we expected it to be but the vast majority of the impactful deployment of Capex will be deployed by may of this year.
And in time for the seasonality in that market.
Okay.
Nothing on no thoughts on sort of any of the other properties or markets at this time.
George has anything he'd like to rather than any of the other ones.
No.
We're underway with or whether with their capex in Kansas City.
And we're hoping to have that fully online for full year 2000 22023.
And we're focused on our rebrand right now I think Lee touched on that.
Initially we were we started that in the early second quarter of this year really focused on marketing as well as the kind of operational aspects related to rebranding and lot of that lead time.
Which does rely on one regulatory approval, but now we are underway with the physical rebrand of signage and.
It will be completed that bye bye.
By the end of the first quarter of 2022, we should have a tower portfolio rebranded to then be aligned with.
What we're trying to do from an Omnichannel perspective.
Got it thank you so much.
And we will take our next question from Stephen Grambling with Goldman Sachs. Your line is now open.
Alright, Thanks, and Lee Thanks for all the thoughts, but I'd love to start off with maybe a broader question on just how youre thinking about the North America digital market, both from a competitive standpoint in consumer behavior standpoint.
Relative to the experience in the U K and perhaps how that frames your view of the margin structure and market evolution over time over the long term.
Alright, Thanks, Steve and thanks for the question.
If I look back at the U K.
Yes.
Some few lessons for us from the U K alone.
Conscious not to just saying everything is the same because I think there's quite a few different dynamics in the U S.
But you know first thing to say is that the winners are not decided in the first few years.
Look back at the history and evolution of the U K market.
That's where all of that over the first 10 years.
Which tend to.
Bring that to the full and decide who the winners are.
You use of data and how you leverage that U K I think that you know unique content and unique acquisitions funnels will be kind of critical to avoid the kind of massive over spend with with just throwing money above the line and hoping that it sticks. So.
Seen us with the acquisitions that we've already made in the partnerships that we've already struck.
Starting to craft together.
A different way to approach the market and games. This has always been different in the way that they approach the market in the U K.
Very scientific in terms of the way that our clients play is very focused on digital marketing.
In the U S of course will have a number of different opportunities one through the media partnerships that we have to through some of the great acquisitions. We've made on free to play in that site like sport Cola run and tell a sky is.
Super interesting parts of the business for us to really give us a better funnel.
And then of course the.
The retail casino database, which we intend to leverage in a more integrated way than we've seen done today and that's not a dynamic of course that really exists other than the let's call. It the betting shops in the U K.
I mean, I think we're somewhat at the start at the beginning.
I think it's way too early to call the winners.
And I think the past looking at differentiated funnel with differentiated content and ways to unlock that is kind of really critical for us over the next 12 to 24 months.
But that's all Super helpful and one unrelated follow up this maybe more for Steve the capital allocation on the capital allocation front I think I saw a buyback authorization I guess, how are you thinking about redistribution of capital back to shareholders. Even if that's over the longer term versus maybe further M&A and what the right leverage level is.
The business in a steady state.
Yeah. Good question, Yeah look capital allocation is a is a.
Frequent topic for our senior team and board.
We go through it.
Many times per year.
It's variable right.
What's the stock price what are the ROI see expectations on capital investment opportunities facing us.
What's our leverage through recent LTM cash flows.
Et cetera, and so that kind of frames.
A discussion for capital allocation that said.
Look over time, we are we've said it many times, we have a kind of a longer term steady state view of leverage.
It kind of a mid fours range.
But let me couch that as mid fours on our two operating cash flow businesses that being international interactive and the retail casinos, we have in our capital structure kind of parsed away North American interactive and that's as a separate investment opportunity.
But let me also say that we do not have or have any issues with strong ROI see.
Investment opportunities today.
We have George just talked about the the.
The three retail investment our investments we have going on we've got opportunities potentially in New York and Chicago and elsewhere.
So look it's nice to have these problems to consider capital allocation. The good news is as the press release talks about we've got an abundance of free cash flow between the two operating divisions and then so there's plenty to work with there.
So even if I can also add to that maybe a little more directly the if I stopped remains as low as it is we will be buying it.
So there's the the cold and some of that will depend on other opportunities that were facing.
We will continue to be opportunistic on retail casinos, you've seen our ability to move fast to add things to the portfolio that we think make great sense and I think our track record that is excellent.
<unk> will continue to be interested in.
<unk> content and unique distribution models, but beyond that I'd say, we're happy with the assets that we've pulled together today.
That's all Super helpful context, thanks, so much and best of luck.
Thanks Steven.
And we will take our next question from Jordan Bender with Macquarie. Your line is now open.
Good morning, everyone.
You called out the media.
Relationship is driving your brand awareness can you kind of touched on the Sinclair RSA ends earlier in the call could you and would you look to expand your media pricing through other or send your media partnerships outside of Sinclair.
Yes, Jordan I don't think anything is off the table.
We'll always look.
Obviously that depends on the economics of that deal and whether or not we think that's going to add to us in the right places and doesn't sync with the road map of rollout that we're considering and looking at.
Yes is the answer we do think that the right media partnership economics in the right places can work very effectively for US we're not limited to.
Just the leverage of the Sinclair relationship.
Okay, and then understanding it's early days can you talk about the app downloads and kind of your first time depositors coming from your casino database.
Well the App today is the valley about one zero out we really haven't pushed it Jordan is the truth because what's.
What's out there today is not the product that we wanted to put in front of our customers.
Been a great learning experience for the team it was put together by the beat to be a team that works.
I think that'd be the first to say that they're not the b to C expert in our group and the specialists delivering the betting engine and I think that what we want to keep our powder dry to really push the two zero when export together all of the expertise that works with the expertise of game.
This is not something that we'll look to push and of.
Of course post the two don't there are.
<unk> launches, we should have a lot more metrics to share with you.
Awesome. Thank you.
Thanks.
And we will take our final question from Adam Seesaw with gravity. Your line is now open.
Yes, good morning, and Lee congratulations on.
I'm, telling you very complicated story with a lot of moving parts.
As you can.
Hum.
Just to be clear, the 20% free cash flow reinvestment into North American interactive.
For 2022, and 2023, that's largely come through the P&L is marketing right.
Yes.
I think the majority of that will come through the P&L in Multistem.
Yeah, Ken I know from having some.
Thing about what you did a game.
You do as you mentioned in passing take a very scientific approach to cash.
LTV and so forth.
A fair amount of concern on the street that people that youre going to waste money.
Money at this problem. There's a lot of people are can you just spend a couple of minutes explaining how you did it at games and how you think that will be.
Sure.
You know you will carry that over to.
OSB.
So throwing money at the world just simply isn't in our DNA.
I would say that there is no doubt, we all going to have to do a level of awareness build if you like but we think that the media partnerships, we have and Sinclair.
And the retail casino footprint and database that we have will limit the amount of let's say ATL brand awareness that we need to do as focus has always been on digital channels.
And ensuring that when a customer arrives at all that we can understand their LTV quickly.
We have.
Oh V, which is our projected LTV outgo, which effectively gives us or you can.
Project over whatever timeframe you lie we take two years just to be conservative most players stay a lot longer.
We project to LTV, and plus or minus 10%.
Two years within the first 48 hours of the customer experience and the side that gives us huge latitude in terms of our the opening the hosel closing the hose.
Marketing because we can buy on the ratio of CAC to LTV rather than by CPI.
Absolutely the deployment, we will do into North America interactive and so the vast majority of our marketing spend will be done with that consideration. Obviously you can still then Barry the ratio.
What you do and typically when you enter a new market you might have a CAC to LTV ratio of more than 50% than 30% in a mature market, but that's exactly the approach we will take.
And then just as a quick follow up.
You know if I take 20% of the 400 and change million of free cash flow that you've put out there.
$80 million.
Oh.
And in the P&L for North American interactive.
The $125 million of revenue, so am I missing something to say that.
Like North American interactive could be free cash flow positive as early as next year.
I'm not expecting it to be pretty cash flow positive in 2022.
I think we'll be continuing to reinvest some of that revenue that is coming in.
But that will I think Ive said earlier in the call out and I think that towards the second half of <unk>.
2022 will be in a much better position to do.
Give some idea of forecast on that.
Thanks, a lot appreciate it.
Thank you thanks for your time.
And there are no further questions on the line at this time I will turn the program back over to our presenters for any additional or closing remarks.
And that does conclude today's program you may disconnect. Your line at any time and have a wonderful day.
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