Q1 2022 Bally's Corp Earnings Call
Chief Financial Officer of valleys. Please go ahead Sir.
Good morning, everyone and thank you for joining us.
On today's call the earnings release that accompanies this call is available in the Investor Relations section of our website.
With me on today's call are Lee Fenton, Chief Executive Officer, George <unk>, our president retail and Robeson Reeves President interacted.
Before we begin we would 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.
Risks are discussed in the company's earnings release and SEC filings.
Results may differ materially from the results discussed in these forward looking statements and.
In addition, during today's call management will refer to certain non-GAAP financial measures reconciliations.
Reconciliations to the most comparable GAAP financial measures are included in the schedules contained in 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 and will be available for replay shortly after the completion of the call turning it over to Lee.
Thank you Bobby Hello, everyone. Good to be with you today. It has not been that long actually since we last reported in that short time, there has been some change and we have achieved one very important milestone.
The momentum we saw in casinos that results in late February continued through April Atlantic City with positive in March and April which is an exciting turn for that property.
The removal of Max mandates and the return of smoking in Rhode Island drove the highest performance that since early 2019.
On the interactive side on a constant currency basis, the business was up 1% year on year, which was driven by a balance of some weakness in the UK and continued strength in Asia.
In the U K, the consumer wallet has shrunk due to inflationary pressure and we need to reset our operating structure to accommodate the change we have already started to remove some lower performance marketing spend and we will execute on efficiencies from our larger global portfolio.
Structurally we have the tailwind to the long term pathway on growth in Asia as well as the high growth opportunity set to invest in in North America.
During the quarter North America interactive was in ramp up mode.
Ali I casino in New Jersey continues to build and Virgin I can see now transferred to the ballot licensed during this quarter.
We launched live dealer in New Jersey, and additional proprietary games are being deployed including valleys blackjack.
Balances now appetite convergent in terms of activity and revenue.
Additionally, we will wind down providing <unk> services to Tropicana this quarter and that will free up resources and accelerate <unk> seed business.
The New Jersey business is tracking well.
We view that lower cost of acquisition with circa $200 CPI and streamlined infrastructure to be on multiple as we rollout additional state over the coming months and years.
We launched an Arizona yesterday with our foundational to zero product in New York will follow later this quarter. This is a significant milestone for us and represents a huge effort by the team and I'm proud.
Proud of all the work that's been done to bring our technology stack together.
Arizona is a key market for us without groundbreaking WNBA partnership marketing spend with the diamond backs and a media partnership with <unk>.
In New York, we will be cautious as we keep a keen eye on marketing spend and how to navigate a high tax environment in full static.
We're on track to launch in Ontario in the summer.
In the second half, we will focus on states, where they are I casino opportunity, although we expect that to be a casino opportunities in the near term.
In April we signed a partnership with the Cleveland Browns to market access in Ohio, taking our market access footprint to 18 states.
Jumping into some of the segment detail casinos and results reported at $85 million EBITDA at 34% EBIT margin.
This includes $5 6 million of Atlantic City losses of which more than 3 million more in January .
Excluding IC EBIT.
With $91 million compared to $89 million in <unk> 19, <unk> 19 is pre Boston encore opening so our comps get easier as the year progresses.
There was approximately $5 million of weather impact and an unusual January .
Delivering positive EBITDA.
In March as proof that the new rooms, and heightened to maintenance is converting that property back toward historical performance levels.
700 rooms will be completed for memorial day, approximately $60000 a key.
New lobby bar and outdoor <unk>, who will revitalize the proxy.
We started valley's IC launched campaign that will bring awareness to the proxy and <unk>, which will help drive customer acquisition efficiencies the omnichannel experience.
A list of mandates and smoking bans drove Lincoln monthly profitability not just at the highest level since early 2019.
We are currently operating significantly above our long term forecast and we're cautiously optimistic for the full year potential of our marquee properties.
Most of our properties continued their momentum in April , but we're watching the lower income consumer very carefully and we're aligning resources accordingly.
Moving to international interacted on a constant currency basis, the overall business was down 1%.
Which includes the wind down in non core geographies are.
Our UK business was down 9% offset by our Asia business, which was ahead 16%.
Of the World business was flat, which on an overall basis is slightly below our expectations.
Top line performance in the UK continues to be challenging as we lap tough comps, we delivered the 30% growth in Q1 of 'twenty one.
The Q1 slowdown with all food relevant activity driven as.
As we saw some tightening in consumer spending.
Combination of UK consumer weakness market friction in front of new regulations, and a significantly weaker FX lowers our top line expectations for our business in the UK.
We will align and redirect resources accordingly to maintain that earnings level from the business.
As a note FX impacts top line actually has a de minimis impact on earnings.
Asia continued its double digit growth path I know you've got a brand continues to take share thoughts consolidated that position as our largest product segment, even when you combined life and LNG casino and we believe this demonstrates wider adoption of the online gaming in the market.
We're first mover at that and say that the data is pointing us to tremendous opportunities in both short and long term.
We will be launching sports betting in June the offers us another opportunity to accelerate the business.
We continue to expect Asia to deliver double digit growth that throughout the year will help offset any slowdown in the UK.
On an EBITDA basis, Spain, and rest of World performed in line, we will continue to profitably wind down the non core market.
Moving on to North America Interactive we've made good progress in the business, leading up to a full launch calendar.
<unk> has 600000 of revenues in January jumped to $1 $5 million in March which is a great brand.
Cola telescope and our various fee businesses continued to provide low cost acquisition opportunities, while we wind down Dot works business with the store that will come to an end in July .
Our new front end combined with the game, it's Pam and data analytics is a big step forward for the business.
We will launch sports integrations with our Sinclair partnership amongst the proliferation to asphalt products.
In the quarter EBITDA loss for North America Interactive was $19 million as we accelerated development costs to make a state by state rollout more scalable.
Now I'll turn it back to Bobby.
More details on financial performance.
Thanks Lee.
Started weak with unusual weather and casinos and resorts and negative momentum in international interactive that carried over from fourth quarter.
To give some context casino and resort to EBITDAR was $19 million in January .
$39 million in March in.
In the U K.
On a constant currency basis U K revenues were minus 11% year over year in January versus minus 5% in March.
Needless to say, we have some components to make up for in 2022, but April has been strong.
Additionally, we are increasing our cost savings from the games to transaction from $5 million disclosed last quarter to $10 million on an annualized basis.
We believe this will continue to grow, particularly once North America interactive launch launches ramp.
I wanted to take this time to address our foreign exchange currency position.
Our February 2022 forecast.
Set at 135 GBP to USD.
The volatility in the market and various potential bank dynamic GBP to USD has moved 7% since our guide.
GBP to USD moves impact our U K business topline reporting in dollars. It has very low impact on our EBITDA.
Our top line.
On the international Interactive business is approximately 30% USD.
60%, GBP and 10% other currency.
Our costs are 20%, USD, 65%, GDP and 25% Europe .
FX moved tempers, our topline guidance, but also moves our interactive EBITDA margins up we will continue to monitor the situation.
Our North American business had minus $19 million of EBITDA driven by developer time on ramping launches for the rest of the year. We expect these investments to subside as we progress through the year.
Software development cost for interactive or $15 million, which is the right place for the rest of the year.
Corporate.
Was minus $13 million.
Slightly higher than expected due to front loading of our charitable donation programs.
Length of $11 million was in line.
As we announced on April one 2022, we closed the first part of the Tropicana acquisition related to the sale leaseback of Quad cities and Black Hawk.
We view these transactions as part of the larger Tropicana project.
The rent for those products as part of transaction cost until we announced the larger project.
More to come on Tropicana in the coming months.
For the full years, we expect revenue to be at the low end of our previously announced guidance of $2 four to $2 5 billion due primarily to FX and some slowdown in the U K.
Our EBITDA guidance remains the same in the range of $560 million to $580 million with efficiencies offsetting the slowdown in the U K.
Our capital expenditure guidance remains the same at $180 million of property related Capex.
$6 million of interactive Capex and $30 million of one time corporate integration Capex.
Maintenance Capex remains in the $100 million. Thank.
Thank you and turning it back to the operator for Q&A.
Thank you at this time, if you would like to ask a question. Please press star one on your question.
You may remove yourself from the queue at any time by pressing the alky again that is star one to ask a question.
We'll pause for a moment to allow questions to queue.
Thank you our first question will come from Jeff Satchel with stifle.
Hey, good morning, guys. Thanks for taking the questions.
My first question is going to be on.
My first question here is going to be on the international Interactive business you called out the tightening in the U K. There is some FX headwinds just curious how does this play into your prior guidance for the segment, which called for mid single digit top line growth at about 20% to 29% margins just how should we think about those targets in light of some of these headwinds you called out.
Yes, Thanks, Jeff.
Yes.
I think it's common across the industry has seen some slowdown in the UK UK spending has been tightened to inflationary pressures on that.
We're now projecting.
Low single digit growth in.
The U K, but we're aligning our cost base to maintain the profitability and the earnings flow from U K. So I think youll see margin nudge up.
From the 29 maintain our earnings that we're expecting some some weakened.
Weakening on the top line.
Okay perfect that's helpful and encouraging and then maybe if we just hang on that for a second the appreciated pressures I guess, what what are you seeing like one of your data gives you gets you comfortable that leaves us conclusion versus maybe the softening being something more of a function of of Covid tailwind just just taking more.
Then a year to really come out of the business. What leads you to think it's the inflationary pressures that's really driving that softening is it something between the low and the high end of your database just kind of what date are you seeing that kind of brings you to that conclusion.
Well really the add retained actives offsets right. So we continue to see activity, which is always the first thing that we look for all people engaged they'll still engaged but we've just seen a weakening since January of weakening in office.
You've got <unk>, which.
All circa 7% to 9% depending on the month.
But we've still got the activity, which is which is a good thing.
It's why we think that it is mostly about the contraction of the complete the wallet in the UK, particularly with the significant is that.
Energy coal.
Understood. That's helpful. And then if I might just squeeze in one more on the North America Interactive rollout I think $19 million in losses was a bit more than most folks were expecting especially with the bulk of the rollout coming in the back half of the year you previously guided to $60 million in losses for the full year is that still intact or how should we think.
That's something more in the 80 to 100 range.
All for me thanks.
Yes, Thanks, Jeff.
We are holding to that now we have a heavy lift in Q1, we built the foundation of <unk>.
Now reallocating some of the resources that helps us do that back to international interactive now.
Now that were at the door.
Combine that with the growing like casino business and more efficiencies on the B to B side of the business that makes us optimistic about the guidance, but there's always the chance that we could decide to put our foot to the floor on the rollout plan.
But we haven't made that call now so we're sticking with where we were.
Understood very helpful. I'll pass it on thanks, Mike.
Thank you.
Your next question will come from Barry Jones with <unk> Securities.
Alright, great. Thanks for taking my question and congrats Bobby on the new role.
Maybe just a first question can you give any color on the strategic review on the conclusion.
Yes, good morning, guys.
Obviously, we are.
We're limited in what we can say here.
Ill.
Pass this one over to our new CFO , Bob 11, who can give you a bit more color. Thanks Barry.
The committee hired World class financial and legal experts, who did a lot of analysis had discussions with representatives of standard general and worked hard to get to what was the best interest of the shareholders.
<unk> worked hard with advisors.
Among other things in terms of senior generals proposal and the fact that it was financed in significant part from sale leaseback transaction.
Valley projects, including the synergies, we expect to realize and other opportunities we hope to be available and recent historical trading prices and other factors.
So at the conclusion of the review inner general and values cannot reach an agreement. So the committee decided to terminate discussions and.
And while it is not an alternative we are pursuing a tender offer to return significant amounts of capital to shareholders.
Great and then.
Thanks to the proposed tender offer as well as other developments youre pursuing whether that's vegas or other cities. How are you thinking about financing and maybe walk us through how you see net leverage progressing for the company.
Yes.
Barry as you know tenure rules.
Our very strict.
So the commitment commencement of the offer is subject to obtaining committed financing and we are evaluating all the options with our advisors so stay tuned.
As it goes to net leverage for the business right now.
On a sort of gross debt to EBITDA basis, we're at somewhere between five five and five five.
We would expect that to be a comfortable.
Physician in the short term as we build out our North American interactive business and we invest in our growth opportunities. So we're not going to be.
Bringing that down anytime soon but there is a way to reduce leverage and netted growing the denominator.
Whats the Max number even in the short run you'd be willing to entertain.
Yes.
Right now we have gross debt to EBITDA.
Incurrence covenants with Rhode Island, So thats a focus for us.
Got it.
I could sneak one more in.
Any updates on the UK regulatory review I know, we're getting close to potentially getting a white paper, but.
Just curious if any updated thoughts that you can share there.
Yeah.
So.
Obviously delay on delay in terms of getting the white paper out we actually have the minister and to visit a couple of weeks ago, which was good.
Attunity to develop them with him key focus for us on the on the gambling out vehicles that covers many different basis, because it covers both retail and online.
But the our focus is around affordability and any of the affordability measures because we think any impact could come.
The.
I think it moves growing.
As in the UK that we don't want to be requesting documentation from players.
At relatively modest levels of spend.
Think that that message is getting through and certainly we felt the minutes that onboard when we met with them a couple of weeks ago.
The.
There is a real pushback from fellow conservative pace not wanting to take that.
The nanny state route calls requesting documents low level of spend that's the key thing we're looking to make sure it doesn't happen.
We are pleased to say that yes, I think it was yesterday, who died so the gambling Commission reported yet another fall in the problem gambling rates right.
That will show that.
We've been going in a positive direction for a long time now.
<unk>.
The changes that were implemented.
Be too impactful to what we do as I've said many times, even let Barry.
Any change in regulation.
I think is likely to benefit the scale players.
And that we would take share over time up to that.
Alright. Thank you so much guys I appreciate it.
Thank you.
Thank you. Our next question will come from Ricardo Chinchilla with Deutsche Bank.
Ricardo Your line is open please make sure your phone is on.
Mute.
Hey, guys. Thanks for taking the question I was wondering if you could provide some color on what potential funding mechanisms would you guys happy we were awarded the Chicago project.
Or have you guys were decided to.
Do I think nipigon renovation at Tropicana, which any color also on that development will be very appreciated.
So hi, Ricardo morning, we've.
<unk>.
A long time that we can.
We've got a very substantial land bank.
We will tap or significant strategic opportunities for the business.
And I think that we can do that.
And for Chicago, where we can win that bid.
<unk>.
I think the same.
Be true for chocolate partner ally, we've long said that we would do that with an investment partner.
More to come on that is I think Bobby mentioned that will be we'll be we'll be talking much more about.
Both of these projects over the coming months.
Great and just from a timing perspective, when do you think about all the Ballston gear that you guys have at the moment.
To some extent we continue to have you had any investor questions on how youre going to manage to do them. All at the same time. It maybe you could provide like a timeline on.
When would you be potentially starting a project in Tropicana any further development on drivers what would be sorry on <unk>.
Chicago when would that start then how long it could potentially take given your your current plan. So any timing on those potential development in auto in all of your order Capex projects for us to have a clearer picture of the spend levels would be very helpful.
Sure. So just one comment from me and then I'll pass over to George to give a bit more color.
From our perspective, obviously, we need to win a bid in Chicago.
And to be able to proceed but two it might be able to give a bit more color.
What the timing would be should we do that depending on the timing of the announcement.
Then.
In terms of <unk>, we've said that we will close that in Q3 alright.
Anything that we're going to do that we will give more color on over the next couple of months.
But we'll be back to you as soon as we have the details George do you want to keep the driver so in Chicago, the RFP required the opening of a temporary.
Alrighty.
And approximately one year, but thats after the licensing.
Thats, a year year and a half two year nine months off and then three years subsequent to the temporary openings there will be the opening of the permanent facility.
Got it.
And last one for me.
Given that you guys reaffirm your guidance can you just point out if there is any potential impact that you guys are forecasting from the U K regulatory review and if you could.
Give us some based on what's what.
Your discussions have been with regulators any range of potential impact.
Even preliminary on what Todd review.
Be for your business.
Well, we've already for the last two years, we would say have been operating in line with the loss of policies and practices, which are being promoted.
By the U K gambling Commission pool the review.
Obviously, we have to wait and see what Wi type. It says in terms of where any particular threshold levels offset but we've been we've been adapting our business and adapting our operation to take account of most of what's been coming forward as proposals.
In the U K so we.
We don't.
We're not putting out.
Impact today in terms of how that review might go because we think that most of what will be proposed in the UK.
Already operating in title.
Got it. Thank you so much for taking my questions.
Thanks Rocco.
Thank you. Our next question will come from Dan <unk> with Wells Fargo.
Hey, guys good morning, and congrats Bobby on the new.
<unk> I.
I wanted to touch on the regionals could you talk a little bit about the trends that youre seeing across the database I know you mentioned you're monitoring the low end.
Consumer but to what extent can you maybe opine on the low end middle end and maybe even the high end if theres any discernible differences across your database.
But also whats properties should we be paying particular.
Attention to as we think about that low end consumer.
Okay.
Dan Yes, so we're watching.
Really the only kind of headwind that potentially could encourage inflation.
As we went into this but.
We're closely we're closely watching the impact of inflation certainly is on the lower household income segment of our database.
But thats currently being offset by some pent up demand, especially in our older age demographic there is more comfort.
It is behind Us and.
And we continue to see growth in our higher worth customer segment.
And we're dealing with that through the right sizing of the cost structure.
So when we came out of Covid, obviously, we came out with our fixed cost structure.
And we feel from the.
The variable side of our business, which is just.
As business increases or decreases we havent, Lisa kind of accordion approach that mitigate any shortfalls in revenue, but certainly allows us to quickly react to certain revenue opportunities.
Got it and then just in terms of all the kind of potential projects out there.
Cargo.
Europe , Japan are also throw out too is areas, where you're where you're interested how should we think about the typical cash on cash returns.
For these casinos there are potential projects I think for Chicago. The proposed causes is around $1 $75 billion. So.
Get a sense of the return expectations, there and does that is that all in including land licensing fees et cetera. Thanks.
Bob why don't you put element yes.
<unk>.
Always underwrite sort of at least a 15% return unless there is a.
Inefficient active.
Interactive dynamic, but 15% is what we're underwriting on those projects.
Got it and then just one last one on Trop Las Vegas as you think about this project and the possible iterations.
It could come out in.
How do you think about the impact of rising cost inflation materials cost economic uncertainty on your plans there.
Georgia and pick them up.
Sure. So obviously, we are monitoring the economic condition right now, but anything new there.
We'd be really focus on our longer term development opportunity as we mentioned earlier we would.
How are we bringing a development partner into that so that's still producing.
Understood. Thanks, so much.
Thank you.
Hi.
Thank you. Our next question will come from David Katz with Jefferies.
Hi, good morning, Thanks for taking my questions.
One for you.
I'd Love your opinion or your perspective on.
Entering U S markets.
Other than day, one like we've seen.
Players enter on day one.
Certain approach in terms of how much how aggressive they are with spending capture.
Capturing market share.
Versus entering markets say rich months down the road, where it has tended to be a bit less aggressive.
Love your perspective on sort of those strategies in markets, where we are entering.
So good morning, David.
We've reiterated many times in terms of how we look to approach the market with.
A similar let's say high progressive marketing spend that you've seen from some of it.
Mentioned also earlier that we're going to lean into a number of launches that.
Really leverage the opportunity set that we believe we create alright. Thanks.
<unk> is our gaming opportunities that we think thats going to be pretty near term on gaming opportunities.
One we will have a particular focus I think.
Yes.
Illinois, and Indiana or et cetera.
We also have physical casinos, we have immediate preference.
We've been.
Even though we haven't had.
There are sports book out there until yesterday.
We've been at.
It doesn't mean, we haven't been active right we've been doing a lot in building our top of funnel.
The awareness whether it's through.
Ali.
Ali.
All through free to play opportunities and building our dataset.
So that's where we continue to focus we will very hard return on investment from our marketing.
And stay disciplined.
Understood and just second with respect to the land based business.
You mentioned earlier.
Considerable land bank and I want to make sure I interpreted your comments properly.
I took that to mean that there is real estate value within the land based properties as it exists today that you could use to fund.
Either Chicago or other.
Their improvements or other capital expenditures within the land based portfolio.
Is that how youre thinking about it.
Yes, you understood it correctly.
Okay perfect. Thank you.
Thanks, Dave.
Thank you again.
Your question. Please press star one.
Our next question comes from Stephen Grambling with Goldman Sachs.
Hi, Thanks, maybe another follow up just on the tender I guess determined the magnitude that 300 to 500, I guess why was that the appropriate range.
Yes.
That was where the board felt that a good amount was.
Can't comment more than that.
And is the tender offer.
Kind of the ultimate.
And the result of that review.
Or would you say that there is also other opportunities that you can think about that.
That are still being evaluated.
This is the ultimate end of the review.
The board is always evaluating ways to drive long term shareholder value.
Great. Thanks, that's it for me.
Thank you. Our next question comes from Jeff substantial with stifle.
Hey, Thanks, guys I just wanted to circle back.
To clarify and be Crystal clear on the guide so it sounds like the biggest impact is FX, which is compositional and impacting revenue.
Fair if revenues are at the low end, but that's all composition all the prior EBIT guide it still squarely in line with how you were thinking about things back in Q4.
Yes, that's correct yes.
Perfect I just want to clarify on that that's all for me. Thanks guys.
Thank you.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect have a great day.
Okay.
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