Q3 2022 Bally's Corp Earnings Call
Good day, and thank you for standing by and welcome to the Bally's Corporation third quarter 2022 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 Starkey fault by the number one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to turn the call over to Bobby Levine Chief Financial Officer for Bally's. Please go ahead Sir.
Good morning, everyone and thank you for joining us on today's call the earnings release and presentation accompanying this call are available in the Investor Relations section of our website.
With me on today's call are defending Chief Executive Officer, George <unk> and pregnant retail Robeson Reeves President interactive.
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 that 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 and.
In addition, during today's call management will refer to certain non-GAAP financial measures reconciliations to the most comparable financial measures are included in the schedules in our earnings release, we do not provide 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 conditions call now handing it over to Lee.
Thank you, Bob and Hello, everyone.
We are one year on from bringing guidance is into the <unk> family and the industrial logic remains as strong as ever.
We now have a powerful global business.
With diversity of revenues and EBITDA.
The casinos and resorts segment is going from strength to strength.
Totally a property goes into the next phase of integration.
The interactive business, how the task.
It's driven comp to overcome and has been impacted with negative FX swing 322.
Q3.
As seen interacted needs to greater stability and profitability.
As promised we continued to deliver strong.
Free cash flow from what is now a globally and channel diversified business.
The optimal integration of our combined assets remains unfulfilled for now as we still have work in progress, but we have made significant strides towards fulfilling that vision.
The awareness of the <unk> brand continues to grow with employees from table dealers protect developers identifies valleys tier members.
Integration beyond the brand on the casinos and resorts side's has begun and we're starting to see the fruits of that labor.
Dallas Chicago.
It is a game changer for the group.
Early performance to Tropicana Las Vegas has been encouraging and we're delighted to finally have a presence on the strip.
New Jersey online gaming fund to a three 5% market share in the quarter with CPI significantly below our peers.
Broaden the options available to move the database.
New Jersey is shaping up Leigh thinking so.
Sure States.
For the third quarter, we had tremendous results and casinos and resorts.
Lincoln outperformed, finishing just shy of double digit revenue growth coupled with a continued focus on margin and the initial growth of the IGT J D.
That JV you guys from 23%, 40% on January one and will drive incremental earnings into 2023.
Atlantic City had nine 5 million positive EBITDA to bring the year to date result to positive $1 million.
We do expect AUC to be negative in Q4 as we continue.
Breaths on right sizing the cost structure there.
We have seen further growth in the higher tiers of our database across the portfolio helped by more of a more aggressive push on tables and our more recently acquired properties.
Our EBITDA margin.
<unk> was ahead of expectations.
39, 5%.
With a more integrated portfolio. We are now benefiting from cross marketing cost efficiencies from purchasing power and increased centralization proving out our strategy separating the two together.
And international Interactive the U K was slightly up year over year on a constant currency basis, delivering a record number for our UK business.
First positive quarter since Q3 dollars 21.
We expect that Q4 will also be positive in the range of high single digits.
Performance was driven by more targeted marketing spend more dynamic jackpot strategies and enhance customer journeys powered by machine learning.
The UK White paper continues to be delayed following government leadership changes and one ongoing delay, bringing some wildcard uncertainty the industry has given us ample time to prepare our business for a range of potential outcomes should the white paper before coming in the near future.
Asia continued some of the weakness we saw in the second quarter being down three 3% year over year on a constant currency basis.
We are beginning to revise our multiyear strategy to maintain profitability in the region.
We have seen blips like this in Asia before we remain confident in the market and our ability to grow the business.
And the sports book There is launched in time for the World Cup.
The customer funnel is supported by free to play games from us for quality.
We will continue to harvest, Spain and <unk>.
Wind down and the rest of Europe .
North America interactive continues to be in both development and ramp up mode.
New Jersey on 12 million of <unk>, nine 3 million with NGL for gaming App in Q3, Chevron disciplined and bonuses and given that the contribution margin in the mid <unk>.
We rolled out new lobby and more games from multiple partners during the period.
We expect New Jersey online gaming to continue to grow and be profitable for the rest of the year. We are targeting six to eight points of market share in 2023. After the implementation of Omnichannel rewards along with improvements in payment processing and marketing tools.
Bally branded App in New Jersey continues to deliver a very attractive cost of acquisition for depositing players even before the marketing tech stack improvements that will be coming in 2023.
Different states will have different characteristics and our focus is on creating the blueprint for states with a similar time before we invest in all of that.
As I said, the only gaming states are our priority and we will focus resources in markets, including Pennsylvania voluntary as well as state that we believe will regulate gaming in 2023.
Our progress on sports has taken longer than we expected and we will not support the sports only markets with marketing dollars until we are comfortable that we've got the user experience on the technology, where we want it.
Yesterday, we launched our first combined casino and sports book that.
We will continue to focus on being Olive garden landed, Ontario, which we expect to become one of the most significant markets and scale in the North American footprint.
Our focus remains on the continued development of our product on the market blueprint rather than being overly aggressive on rollout.
Now, let me turn it over to Bobby to give you the financial highlights for the quarter.
Thankfully casinos and resorts reported $119 million of EBITDAR. This includes positive $9 5 million of EBITDA for Atlantic City.
Excluding Atlantic City EBITDAR margin was 39, 5% in line with our targets of high thirties.
Adjusted EBITDA for the quarter excludes $3 million of ranked <unk> associated with the purchase of Tropicana Las Vegas, which we closed on September 26.
With the closing of Tropicana, we will begin reporting $5 6 million per quarter of length as part of the operating rent going forward.
International Interactive had approximately $76 million of EBITDA at a 33, 5% margin.
U K was plus <unk>, 1% year over year, and Asia was minus 3% on a constant currency basis.
As Lee discussed marketing was reduced in the UK by 30% as we focus on profitability and highly efficient spend.
North America interactive at $20 million of negative EBITDA in the quarter. There was approximately $7 million of EBITDA drag from non core assets, which we are taking a hard look at it as <unk>.
In the press release, we will fully expense launch costs for states.
Before being operational this is a 4 million dollar drag to <unk>, plus <unk> and a $6 million drag to <unk>, plus <unk> versus budget and previous forecast.
Cash outflows were budgeted to the balance sheet and we are just adjusting the timing of taking these expenses.
We have updated our 2022 financial forecast to reflect the adverse FX headwinds reset in Atlantic City and actual results for the first nine months of the year.
At current FX rates, we expect revenue to be 225 billion and adjusted EBITDA to $540 million, which includes $75 million of North America Interactive EBITDA losses.
We continue to focus on profitability and cutting costs, but some of those cost cuts will only occur with two months left in the year. We continue to expect capital expenditures to be $250 million for the year.
Pro forma for the tender common shares outstanding at the end of the quarter were $47 million and we have incremental warrants options and other dilution of 13 million shares. Some 60 million shares outstanding it's the right way to look at our shares outstanding.
We ended the quarter with $3 3 billion of net debt we.
We have ample liquidity to fund all of our announced projects and continue to invest with care in North America Interactive.
Our long term commitment is to be sub five <unk> debt to EBITDA, which we expect to hit in mid 'twenty four.
And we expect the <unk> transaction with <unk> to close in January of 'twenty three.
Operator, let's open up the Q&A.
At this time I'd like to ask a question. Please press star and one on you touched on from you may remove yourself from the queue at any time by pressing star team. Once again that is star one to ask a question, we'll take our first question from Barry Jonas from tourists Securities.
Great Thanks for that.
Can we maybe start by talking about how October has been trending.
Sure Hi, Barry.
<unk> doing well, so casinos and resorts is a continuation of the trend that we've seen in Q3, you kind of actually finished up around 10%.
Can you just just slightly down.
Great Great and then just for a follow up.
You talked a little bit about evaluating money, losing businesses in North America Interactive could you maybe give a little bit more color about that.
Sure listen as you know we pulled together a.
The large number of assets in a pretty short space of time.
Now have 12 months of looking at that are missing that picture together.
I'm not showing us a near term path to profitability.
Of course under the microscope as they should be so.
We're evaluating how that all mixed together.
We'll make the decisions quickly in terms of what doesn't work now that we have stack pulls together.
Okay, so more identifying sort of look like more noncore, but the overall strategy remains.
Yes.
<unk> strategy remains noncore.
We are identifying effectively what becomes noncore.
Perfect Alright, thank you so much.
Thanks, Brian .
Your next question comes from Lance Vitanza from Cowen.
Hey, good morning, this is Jonathan implants.
My first question is regarding the white papers, so I understand post call you.
Replacement Damien Colin what were your first impressions.
With a replacement Ken can we expect.
Could we get to meet one of his top priority given everything that's going on.
Okay.
Yeah.
Sorry, what was the first question could you repeat the first question again.
Just what was the first impression with with.
The new person in charge of the white paper.
Okay. So yes, we haven't named minutes now.
Six minutes during 12 months.
But.
We haven't made minister for Skylake, Mitch the gambling, what Pedro said the minister of attack.
First impressions are relatively.
Relatively positive.
The big intra dcms.
The first impression, but positive pro business Guy.
Nothing to consider this.
Expectations in terms of where it sits in the pecking order.
Sure.
Difficult to call. The Dcms are two big things on its ticket at the moment one is the online home women's the gambling review.
You may have seen the prime Minister said that he is there.
To deliver.
The manifesto promises.
Given before.
Boris Johnson elected government.
Included the gambling review so.
Sure.
But we don't necessarily expect it to be the top of the priority list.
Understood.
And just my last one.
Okay.
So I understand.
The Lincoln facility right.
Should the transaction ultimately materialized.
What kind of projects will.
Our debt balance will find interesting too to use the proceeds of the sale leaseback with.
Okay.
Well I mean, we have right now the focus is Chicago.
But long term, we think that acquisitions in the casino space will continue and we think that there's opportunities outside the U S from a profitable perspective on interactive sector, we have a multiyear path for cash needs, we feel very comfortable today.
Chicago, but as we continue expanding and we will look to.
A potential sale leaseback on Lincoln.
That's a few years down the road.
Okay understood. Thank you.
Our next question comes from Jeffrey <unk> from Stifel.
Great. Good morning, guys. Thanks for taking our questions starting on the brick and mortar segment really nice performance on the margin side. It looks like call. It 300 bps quarter on quarter. Bobby I was just hoping you could sort of break down the sequential drivers there a bit more how much is seasonality versus some of the centralization efforts you talked about in the prepared.
Paired remarks versus maybe just operating leverage quarter on quarter.
Just any way to frame it there would be helpful.
Yes, I mean the biggest.
Step up is in Atlantic City has really turned around so that's exciting for us and we implemented some cost restructuring in in August that's.
Flowing through but also the property just really outperformed.
The other margin.
Step up is as the IGT JV continues to roll in.
That's ultimately a significant margin driver for us because the EBITDA comes in with our revenues.
Ultimately this is the first quarter, where we have a full year. When you remember we closed Evansville Quad and Mike Bloom in the second quarter of 'twenty one.
We've rebranded the properties, we started centralizing a bunch of different back office functions and we're really focused on just the <unk>.
Portfolio as a whole George.
Okay.
Probably.
<unk> stated it pretty accurately.
So that we've been able to maintain.
The labor reductions primarily through Ftes.
Ranging around 25% reduction since 2019, and Thats pretty sticky so we've been able to maintain that other than the slight offsets from law.
Increases in wages and wages.
Okay, Great. That's very helpful. Thank you, both and then moving to the international interactive side of the business.
Could you just provide some color on what you see as the biggest drivers of the softness in Asia I know we've talked about.
Some impact that's consumers play in USD, but living yeah and is that the main driver or was there anything else.
Driving that 3% interaction and combat occupancy.
Yes, I think it's largely macro factors, which are driving Asian region, which operate in Asia for many years and you see different slowdowns from time to time.
Whether it's macro or whether it's some time sentiment some guy gets the occasional debt.
Then that makes your marketing more challenging but.
The nature of the Beast.
Regulated market.
Tom for the region will be in growth.
Okay perfect very helpful. Thank you both I'll pass it on.
Thank you.
The next question comes from David Katz from Jefferies.
Hi, This is Cassandra asking behalf of day event.
I just wanted to go back to thank you for taking my question and I'd like to go back to the margin question.
$9 five excluding Atlantic City is pretty good.
Lastly, we look forward are there more levers to pull or is there any more room for margin improvement at this point.
There is.
The biggest one is the IGT JV, which is $15 million plus of EBITDA no revenues next year.
So it's a it's a 60 40 JV with IGT is that we're going to see a good step up on the cost side, we are very focused on centralization.
And we started trying to.
Bringing our teams together, whether it's procurement finance HR and so we can really support the casinos more aggressively I would also say Atlantic city.
Is a is zero EBITDA.
$150 million of revenues. So as that continues to have more profitability. We're very excited about what it does to our margins.
Okay, great. Thank you and if I may ask another one.
You said you will refocus your efforts in North America interactive.
On the sports side.
This partnership our asset and kind of Sinclair.
So how do you think about that partnership going forward, how has that worked out so far for you.
So we continue to get a huge amount of benefit from the.
Naming branding that we have with some plan.
<unk> to work on a what's your best feature that could work across those or is that.
<unk>.
Continues to pull Paul about plan and.
We think we got tremendous branding benefit from it.
Reality is.
Said earlier, we haven't gone as quick as we would've liked on Rins sports product and we need to have that in a position that we're excited about to really take full advantage.
The partnership with <unk>.
Great. Thank you very much.
Thank you.
Our next question comes from Jordan Bender from JMP Securities.
Great. Thanks for taking my question.
So trough now closed.
You have a slide in your deck talking about evaluating potential development opportunities.
Comments in the last couple of days that the commissioner of baseball seems to think the Ainsworth wind up in Vegas.
Putting a stadium on this part of land still in the cards for you guys or is are you guys thinking more of just a rebrand or renovation of that asset.
No I think so.
So very much on the cards for us I mean, obviously, they've got to make some decisions and some choices, but we've been in discussions and discussions with other partners as well that may not focus right. Now is laser focused on the property side on the development of the 10 in Chicago.
But we're very much looking at the long term plan for the Tropicana property.
<unk>, whether or not we could put <unk>.
Diamond in the middle.
Great and then you obviously have some pretty close ties with the state of Rhode Island is there any conversations between you guys and the state on potentially legalizing gaming.
Yes.
We would be very keen to see gaming and Rhode Island as we would in any other site, but of course right Islanders.
Very close.
Headquartered so would love to see how it gets rolled out there and we think there is positive sentiment towards that happened.
Great. Thank you.
Thank you.
The next question comes from Dan <unk> from Wells Fargo.
Hey, good morning, everyone and thanks for taking my questions.
So Bobby.
North America Interactive you guys are forecasting now $75 million loss in 2022.
But it sounds like at the same time you guys are.
Pivoting more.
Publicly to focus more on gaming and sports how should we think about kind of the progression 2023 2024 of that $75 million loss should it get better or does it turn positive and if so give us some guideposts.
Yes, I mean, it will be better than it is this year.
As we called out there was about $7 million in the third quarter of losses that we view as <unk>.
Non core slash, we need a plan to make them at least flat to positive.
I casino in New Jersey continues to ramp.
Very excited about early results in Ontario.
Casino in Pennsylvania in next year, and we will.
Be minimizing the losses related to sports betting and in the end, that's what North America interactive should be.
And so the trajectory is.
It is positive.
And we're feeling very confident about that we just need to really looking side at that $7 million of losses in.
The paths.
Burning money for.
Money saved because that was where the market was five years ago is not where we're going in the future.
Okay got it and then.
Have you guys given a long term leverage target as we think about these projects getting layered in in the Chicago financing.
We will be sub five and 24.
Got it thanks, so much.
Thank you.
Our next question comes from Ricardo Chinchilla from Deutsche Bank.
Hey, guys. Thank you so much for taking the question I was wondering if you could provide.
<unk> EBITDA for leverage calculation purposes, and the leverage compared to the one that you referred to Rhode Island.
So the road.
Leverage we report to Rhode Island.
It was about $6 50.
And that's still the leverage davita.
Sorry, sorry.
Sorry, the EBITDA was $6 50, Leverages <unk> III.
Okay perfect for that unit growth, that's on a gross debt basis.
Got it in terms of you know when you think about your project next year and the current state of the capital markets.
Is there a way in which you guys.
Could you know rethink about the $1 1 billion alone.
The other side.
Funding sources that you guys think that maybe you would be required to put in more equity into the project.
You could comment on you know how much more equity would you guys be willing to put in just to kind of lower the rate or make the transaction a little bit more feasible given the current state of the capital markets that would be very helpful.
Yes, let me, let me clear up some confusion in the market that $1 1 billion comes in between 23 and 2006.
I have.
One 1 billion of liquidity when we close.
The <unk> transaction, which should be very beginning of January so if the capital markets don't clear up.
And then I can put more capital in and at some point I'll be able to get a construction loan I don't need that construction loan really until closer to the completion of the deal obviously I want that because we want to maintain as much liquidity at the parent for flexibility for M&A and other strategic.
Options, but were pretty good.
We're close and focused on a land sale leaseback in Chicago, because we think that's a core part of the capital structure, which we've talked about before but really.
We are not dependent on the capital markets as it relates to Chicago until 'twenty four 'twenty five.
Perfect. Thank you so much one last one for me you guys show in your forecast your steel.
Acting too.
<unk> $400 million in 'twenty three 'twenty four.
How flexible are you guys with share repurchases if any of you start seeing a slowdown in the in trends would you guys.
These are you know what other levers can you pull.
To just improve liquidity given the construction projects that you guys have.
Yeah again, we have a 1 billion of liquidity after those sale those share repurchases.
We are continuing to deliver returns to shareholders through share buybacks, but we will evaluate with the macro environment. As we said in October was strong.
So.
I understand we're not seeing it.
We are.
As I've expressed to the investment community. We are preparing for it in 23 from a cost cut perspective, and I think you saw the dip.
Fruits of that labor in the third quarter on the casino side and ultimately.
If the macro changes hard the priority is funding Chicago.
Perfect. Thank you so much for your answers.
Thank you.
And once again that is star and wanted to ask a question. Our next question comes from Chad Beynon from Macquarie.
Hi, Good morning, Thanks for taking my question. Firstly can you just talk about any update your intentions for a downstate casino in New York kind of how that fits in your plan and current capital structure.
No well.
Early days, we remain interested in many opportunities in New York one of them.
And we've said we will continue to look to see if we can get into the mix, but nothing to report right now.
Okay. Thanks Lee.
Then back on the international interactive.
Squarely focusing on the U K.
Clearly, we've been watching that market.
And there's been reports of just higher inflation and maybe a weakening consumer.
When you guys talked about clearly tells a slightly different story.
But can you just kind of give us any trends in terms of if you saw any differences throughout the quarter. If it got better if it was stable I mean, it sounds like this is something you are pretty comfortable with.
Given your history in the market and visibility, but just wanted a little bit more color there.
Yes, so I think that.
Bill will speak to in the U K market and.
Have a very long term customer base here.
So I guess the two of them.
I would use is ultra optimization in terms of everything that we're doing and the kinds of other Reits and maybe you can give us.
Little more color in terms of what you would say yes.
As Bobby said with marketing acquisition marketing by 30%, we're still seeing the same value of revenue coming through from a reduced cohort players we've.
We've made significant other optimizations, which essentially driven more winning experiences for all of our plays across supply base, which has driven up back to days driven off proves the suspect in a sustainable way and driven retention, which gives me a lot of comfort that we have growth in Q4.
That was positive.
Expect to see continuing great margins.
So we have had a little uptick in all too in the quarter.
Nothing Crazy right.
Actually all foods.
Q3, 22, only very slightly ahead of those in Q3 dollars 21.
Great. Thank you both.
Thank you.
And it appears we have no further questions I will now turn the call back over to the speakers for any closing.
Any remarks.
Thanks, everyone.
And it looks like we lost the line.
Please standby.
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Okay.
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Ladies and gentlemen, please standby, we're having technical difficulties.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
Okay.
Yes.
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