Q4 2022 Bally's Corp Earnings Call

And again.

[music].

Good day, and thank you for standing by.

Welcome to the Bally's Corporation fourth quarter, 2022, and yearend 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 followed by the number one on your telephone keypad.

Please be advised that today's conference call is being recorded if you require any further assistance. Please press star then zero.

Now like to turn the call over to Bobby Lavan, Chief Financial Officer for valleys. Please go ahead.

Thanks, operator.

Good afternoon, and thank you for joining us on today's call.

Our earnings release and presentation accompany this call are available in the Investor Relations section of our website at.

Www Dot dot com.

With me on today's call, our incoming Chief Executive Officer, Robeson Reeves in Georgia, happier Valley's president.

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.

Conciliations to 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.

And expenses.

Today's call is also being broadcast live on our Investor site and will be available for replay shortly after the completion of this call. Let me hand, the call over to Robison.

Thanks, Bobby.

Just want to thank Lee Fenton for his leadership over the past 14 years.

We have a great working relationship and a great trends.

He has been one performance man I've learned so much from him we wouldnt be the global Omnichannel leader, we are today without him.

Im excited to be here and look forward to traveling to New York and other parts of the states to meet our investors in the coming months.

All three businesses that are coming together to be one George and the team have done a great job on casinos and resorts. The portfolio's Capex cycle has inflected in the cash generation at the properties, while continuing to build a database for our interactive business is on track we will execute on building the one.

7 billion Valley, Chicago, which will be game changing for us in 2026 the.

The temporary facility is on track to be open this year with the first test of the pent up demand for gaming in Chicago.

International Interactive started slow in the first quarter of 2022, but after the marketing in jackpot optimizations, we executed the UK business has been strong growing 12% in the fourth quarter well ahead of the market.

Regulatory changes to the market in the UK are driving a new dynamic where the smaller operators going away and the bigger operators gaining share a trend I really believe will continue for the foreseeable future.

In Asia, we added to the team recently and we're already seeing the fruits of their labor with the business positive year on year in December and January .

We will invest some of our higher earnings into growth opportunities in rest of Europe rest of World Latin America. The first push will be this year.

In January we announced a restructuring and interactive.

Primary focus of this was North America.

But we also saw this as an opportunity to streamline all of interactive.

Our technology development pipeline has been completely reworked allowing for a more competitive.

Active prioritization.

Few dependencies amongst the teams have also reduced complexity.

With a thousand plus developers me and my team, having a tight grip on priorities is how we'll move faster.

The near and long term results to investors.

In North America upward trajectory on casino continues.

Our business in New Jersey has started to accelerate further with new payment methods.

And other options across Ontario, and the market's too on Terra trends look very very similar.

We plan to launch in Pennsylvania in the first half of 2023, and we will continue to be I casino first.

On sports, we recognize that works acquisition did not give us the platform required to develop a competitive product.

We didn't react fast enough and this will not happen again.

We are confident there are more economical and nimble solutions out there and have spent the past five months analyzing them deeply.

Sports for US is an acquisition tool.

It can drive further engagement from the Bally's brand. So when we approach the choice of technology, we will make sure we have that mindset.

Many of you will be wondering how all lead the business.

You should expect me to follow the data.

Ill be analytical in our approach to decision, making to deliver customer centric profitable solutions.

I believe that the most valuable asset to deploy its focus.

Focus on opportunities with scale and go after them harder.

As a company we will prioritize.

We prioritize the opening of the Chicago temp on time and on budget.

Growing North America interactive in a profitable way.

Our omnichannel data capabilities.

Sports for markets outside of North America, and taking valleys global.

Now I'm going to hand over to Bobby.

Thanks Robison.

Moving to the segment details.

Resorts reported $96 million of EBITDAR in the quarter. This.

This includes a negative $4 7 million of EBITDAR for AC.

Excluding <unk> and Tropicana, which are lower margin properties EBITDAR margins were 36% plus for the core portfolio, which included $2 million of workers' comp charges in the quarter in line with our forecast for the property <unk> portfolio of high <unk>.

International Interactive had approximately $89 million of EBITDA at a 39% margin UK was plus 12% year over year on a constant currency basis.

International was up 6%.

Incrementals were driven by revenue strength and a pullback on low return marketing with CPA cost up in the UK due to the World Cup, we will invest some of these record margins into the business, including some new markets.

We are resetting our long term expectations for EBITDA margins on the international interactive to be greater than 30%.

North America interactive had $6 million of negative EBITDA in.

In 2023, we will have significant cost saves from our restructuring, partially offset by higher access fees and a new streaming portfolio with its fourth week with a large audience.

We have updated our 2023 financial forecast to reflect current FX rates the reset in North American interactive and actual results through the beginning of the year.

At current FX rates, we expect revenues to be two five to $2 6 billion and adjusted EBITDA to be $660 to $700 million, including $40 million to $50 million of North America Interactive EBITDA losses.

We continue to focus on profitability and cutting costs and we continue to streamline capital expenditures, which we expect to be about $170 million, which includes software development cost of approximately 40% to $45 million.

Common shares outstanding of $47 million, and we have incremental warrants options and other dilution of $13 million, which gets us to about $59 3 million shares outstanding.

We closed the temperature in Biloxi sale on January three of this year.

Pro forma for that transaction, we have more than $400 million of cash on our balance sheet and 3 billion of net debt.

We have ample liquidity to fund all of our announced projects and will invest with care in North America interactive.

Our long term commitment is to be sub five times debt to EBITDA, which we expect to hit in mid 'twenty four.

I will now open it up to Q&A operator.

Certainly at this time, if you would like to ask a question. Please press star one on your Touchtone phone.

May recall your question at any time by pressing star two.

Again that is star one and we will take our first question from Dan <unk> with Wells Fargo. Please go ahead.

Hi, This is Zach silverberg.

Dan.

Just a couple for me.

Can you talk about the success you've had recently in the UK.

What has made us successful with it the marketing the product et cetera, any sort of commentary would be great.

Thank you.

Well some some operators are leaving the market.

So there is consolidation happening.

Also taking share by targeting more effectively with a really high quality martech stack.

We're seeing very solid spends from come from customers with great visit frequency. So we see this as very robust revenues.

And we're gaining traffic by people, leaving the market.

Yeah.

Thanks, appreciate that and just one more.

Have any.

<unk> or expectations or commentary for a New York Casino and just remind us of the rationale to pursue that.

Or just to throw your hat in the ring.

Thank you I'm going to hand over to George.

Thanks Rich.

Zach yes, so listen.

It's a public process that we're participating in the RFP process.

Honestly, we see huge potential in that market.

The process is moving relatively quickly.

We could put together.

Great bid, especially just coming off the Chicago bid.

We are looking currently at a two site approach.

Well for us in Chicago.

Something that we may be maybe duplicating in this in this process.

But we're not going to get into the specific strategy at this point in time, but obviously, we see the potential of the market.

Thank you.

Kim we'll take our next question from Jeff <unk> with Stifel. Please go ahead.

Hey, good afternoon, everyone. Let me just start off by saying ropes and congratulations on the new role really looking forward to working together more closely here and lead that's the block.

Your next endeavor.

Starting off year, one for you maybe on the international interactive business, Japan looks to be hitting a bit of an inflection point. After a couple of difficult quarters could you just sort of update us on some of the headwinds <unk> been experiencing in that market, whether its FX top reopening comps general consumer malaise competition.

Have you and maybe provide some context for how do you factor these in tier 'twenty three guidance.

Yes, so in Japan, we saw a degree of sentiment slow new traffic to the market. We see this coming back to us now.

We have maintained share and actually increased our share in the market.

I feel very positive that we've got a good control of our margins there.

They have improved somewhat.

I don't see that changing.

Yes, I have high hopes for Japan, I think is a fantastic market with huge potential.

Okay. Great. That's helpful. Thank you and then for my follow up switching to the brick and mortar side of things slide nine of the presentation you lay out some year on year growth rates.

In 2022 for Daly CEO by by each cohort two questions here first I just wanted to be clear. This is same store calculation or are there mix issues to consider and then second the each trends seem to be perhaps a bit counterintuitive given what was perceived to be.

Pull forward of demand or maybe rather wallet share tailwind as the better term for the younger demographic during that initial reopening fee. So George could you maybe just talk a bit more to what you see driving these differences in growth rates by by each cohort and then maybe just anecdotally what you've observed more in the late 2022.

Two into 2021 type timeframe.

Sure. So first of all we've seen we've seen growth in unique customers.

We've seen growth in.

The higher the higher demographics customer, which accounts for the size of the or the increase in the wallet size.

So we feel good about that.

As far as what you are referring to the unique thing Thats happened is since COVID-19.

We've seen the 65 plus customer.

<unk> not responding as quickly as pre pre Covid 2019 and.

At the same time, we have for.

Focus on a little bit more strategy geared towards the table game customer so that tends to skew our demographic younger.

Lot of our a lot of our revenue growth has been in.

In markets, where we've taken opportunities to kind of reenter the table games market and that was primarily as a result of.

A lot of the acquisitions that we've seen recently that we that we put into our portfolio.

Really is a.

Our strategy decided to start to get out of table games, we our philosophy is a little bit different we focus heavily on the table games market and we have.

Seeing a lot of success, which accounts for a lot of our growth and our <unk>.

The newer assets that we've acquired and also we're focused a little bit more on the aging demographics.

Yeah.

Great. That's very helpful. Thank you I'll pass it on.

And we'll take our next question from Barry Jonas with Truth Securities. Please go ahead.

Great. Thank you and congratulations groups.

To start I'm curious, what you see as some of the major differences and similarities in your approach versus lease.

Great question.

I I feel that this is the time to really drive the data further so I'll play to my strengths.

Strengths as I've said are in data.

They are in being highly analytical and making sure that we're leveraging all of our technology across our assets.

And really just when we make a change hitting it hard so we will make very very smart, but aggressive bets on push exceptionally hard that that will be my focus I want to speak with.

Our revenues in our numbers and then we can.

Drive the business forward into the long term.

Great Great and then just wanted to follow up on North America Interactive I.

I believe the deck shows you potentially hitting profitability by 2024, it looks like somewhere around $25 million ish or so just curious if you can kind of share any assumptions.

For for how.

Do you get there thanks.

So as we've described we've got some real bright spots in casino so value I casino in New Jersey. Perfect example, for US launch just over 12 months ago.

It is now 4 million of <unk> per month continues to grow and it will continue to grow beyond that we're alive in Ontario.

Seeing very similar trends, there and will be live in Pennsylvania in the half so play to our strengths and our casino, but we're in it to the absolute long haul, but we're not going to make the same mistakes we made previously.

So we're looking at options to do it in the most profitable way. So we are considering lease options because we don't think you need to own now.

And what's great about that is all the costs are directly correlated with revenues. So we're going to take a very smart approach and we're going to play to our strengths and we know that we are fantastic and I casino everything you can see in our business shows that.

Perfect. Thank you so much and congratulations.

Thank you.

And we will take our next question from Brian <unk> with Barclays. Please go ahead.

Hey, good evening, everybody. Thanks for taking the questions Echo everybody's sentiments about congratulations all around.

I was maybe hoping to.

To start with I gaming I was looking at a slide in your deck, which shows this really great growth in deposits.

And we're not necessarily seen like for like growth in play and so I'm just curious what you see as usual lag if thats a typical dynamic in the market and other markets that you've been in longer is there a missing piece set.

You just need to sort of convert that a little faster you help us understand that cadence.

Yes, there is a general lag to where deposits can vote directly into your revenues you have to firstly get people to build trust and your proposition. So people bring money. They withdraw money once they realize that there is trustworthy as a bank that will keep them money there and they will spend all the money with you so what youll see with.

Is that a hold percentage.

We will grow over time.

Hi.

Truly believe that we will continue that trend, but we have had some big winners were big winners and Jim We will see these trends change and smooth over time.

Okay. Thanks for that and maybe just a near term question on the retail side of things.

What you can tell us youre seeing traffic in the casinos in terms of.

Different behavior across the database at the time of the database low end of the database rated versus unrated any interesting changes you might be seeing.

It would be helpful. Thank you.

Sure.

So.

What we are seeing the data's database other than kind of a little bit of a shift.

Demographics skewing, a little bit younger primarily for our markets.

We're starting to see.

We're starting to see lower kind of little bit lower than transient play.

So that speaks towards that versus non rated play.

But part of our part of our focus is on.

Noncash segments of our business. So I think that's starting to skew our database.

We're towards.

Towards.

Higher a higher frequency of non rated play.

That comes through are absorbed properties is primarily they come for hotels F&B and other non gaming activities.

So we're starting to kind of see that start to proliferate through our portfolio.

I think.

A big part of the reset from Covid.

Deals with the fact that we pulled out a lot of the more of the promotional programming.

Consider buffet used to be part of that promotional programming certain other entertainment. So youre starting to see a little bit of a shift away from that lower demographic.

And we're more focused on providing.

The amenities that the higher end customers want and Thats starting to.

So not only SKU visitations to the upside, but also the size of the wallet.

Okay. Thanks for all the kind of.

Yes.

We'll take our next question from David Katz with Jefferies. Please go ahead.

Hi, good afternoon, everyone. Congrats good evening.

And all of that.

I wanted to ask about the slide that you have in your Jack on the trough in Las Vegas.

And I would love some more interesting color. It's a topic that's been discussed on and off for.

For.

A number of years and just what you might be envisioning in terms of.

Scale of dollars or partnerships or any further thoughts would be interesting. Please.

Refrigerants.

Hey, David Yeah, So listen first thing first.

We use Las Vegas as a necessity since we were not we want to be a national company. We are a national company, we added the valleys brand.

To help us to help us.

Provide that to the customer.

We.

We bought what we would define as a long term model option.

Certainly had a very good price we could flip it really good return if we wanted to.

We can run it long term.

It pays for itself.

We're very disciplined company I think you've heard that another another earnings calls previously.

So well for one thing for sure is we're not interested in duplicating other people's mistakes and we have a long term opportunity view on this investment and we're going to be patient about looking for the right project with the appropriate return for.

For that market you may have heard in the press that.

We've been we've been having discussions with the as <unk> been having discussions with other.

With focus on other sites as well so there could be some potential there but.

But again anything we do is going to be.

Something that we have the appropriate return.

Okay. Thank you very much.

And we will take our next question from Ricardo Chinchilla with Deutsche Bank. Please go ahead.

Hey, guys congratulations and thank you so much for taking the questions. My first question is a housekeeping question could you. Please provide us with the EBITDA and leverage you reported to Rhode Island and my second question is regarding the proceeds from the sale leaseback transaction in the press release, you mentioned that the company expect to use a significant.

Portion for debt repayment.

I see that you have around $400 million of cash pro forma on the balance sheet as you disclosed on the slides.

Could you. Please provide some color are you already doing any further pay down on the term loan or what are your plans for some of that cash.

Okay.

We're not going to comment on our capital markets activities were always looking at what's the best return for the company.

And the leverage from our Rhode Island perspective is five three times or the EBITDA was $670 million.

Perfect. Thank you.

We will take our next question from Lance Vitanza with Cowen. Please go ahead.

Hi, This is Jonathan on for Dan.

My first question is can you share any insight into consumer strength in January .

Right right.

Yes sure.

In the interactive across the board, we're seeing really solid spend we're not seeing any any strained our tool.

Our projections have been pretty prudent here.

So if the current trends continue I expect to see upside to our revenue performance.

We're not seeing anything yet.

There is no signs of it.

Got it.

George do you want to touch on anything in retail sure.

Well I could add that that business is strong and that our issue is.

Still a tight labor market and it's hard to fill jobs to support demand.

Got it so with that in mind and can we expect that you might see some increase in wages for our for the remainder of the year.

Yes, there's certainly going to be continued upward pressure on that.

But the the jobs that we're hiring are variable jobs. So it gives us the opportunity to control that.

Understood based on demand.

Got it.

And then can we maybe dig a little bit deeper into whats going on in Asia I know there from the preliminary results.

Going to be some growth there so could you maybe share some some.

Give us some update on the region.

Yeah perform performance in Asia is solid.

We continue to grow the player base.

We are seeing really really positive trends like the rfps are strong the visits are very high.

There is nothing which.

Makes me concerned about our growth trajectory in Asia, and I can see margins improving.

As well as the revenues continuing to improve.

Okay.

And the last one for me.

So there is a slide in the presentation.

In lids.

The remaining properties and just wondering is there.

There is still appetite to have more sale leaseback.

Maybe be potential <unk>.

<unk> financing should should probably be awarded that license in New York.

Yes.

And we will always.

View, our land bank and.

As a tool to continue to grow EBITDA for the business. It just has to be the right deal.

Okay. So it's not that you guys are completion right now.

It's on the table, but no immediate plans.

Yes, I mean, we're comfortable with Chicago funding at this point, so we wouldn't go in capital and make how much it's free.

Another.

Project or M&A opportunity.

Understood. Thank you.

So once again Thats star one for your questions. We will go next to Chad Beynon with Macquarie. Please go ahead.

Hey, this is Aaron on for Chad. Thanks for taking my question.

Thanks for all the color on your cohorts and the demographics I'm curious within your guidance can you help us think about what type of a consumer you are expecting in the back half of the year.

If we hold trends.

Where we are today with the consumer we would be above our guidance. So we are expecting some weakness.

And we've been preparing for that.

Sure.

Feeling good right now we are expecting a pullback starting in the second quarter.

Got it thank you and as a follow up wanted to touch quickly on the temporary.

Just given what's going on with macro.

Has there been any change in terms of your outlook there.

Thank you.

Well our focus is certainly on the opening of the temporary temporary.

There really has not been any.

No.

Notice of ore vegetable slide in schedule.

We're looking to open.

Summer.

2023.

Good good.

The good part about the processes of the city's accelerated all the approvals and there is no more approvals required.

Got it thank you.

We will go next to Jordan Bender with JMP Securities. Please go ahead.

Great. Thanks.

As you look to grow the game business on both the I gaming and sports betting side of the business can you maybe talk about the opportunities to expand outside your current geographies. There is an emerging opportunity in South America, just seeing if you have any interest there.

Yeah.

Thank you Jordan.

We absolutely are looking at expansion in South America, I find the Brazilian market.

One of interest I would like and we will very much so pushed the valleys brand as hard as possible but.

We think that it will get cut through and be very effective in the Brazil market.

I think has huge potential and will be a strong pillar for us.

Great. Thanks, and then for my follow up.

Did it go into Vegas are you seeing any uplift between the regional database and Las Vegas database and being able to cross sell people.

Now to Vegas.

Well, we just we just effectively acquired acquired the asset, but yes, there is definitely cross marketing opportunities.

The customers in our regional markets are very interested in any Las Vegas visitation.

But we've also have lake Tahoe in our portfolio.

As well as our Atlantic City, we consider cross marketing opportunity some extent Biloxi and yes, we do get we get some nice benefit.

And cross marketing those properties.

Great. Thanks, Georgina congrats references.

There are no further questions at this time I will turn the call back over to the speakers for closing remarks.

Yes.

Well. Thank you all hearing from US you'll hear from US again very soon.

Good luck.

Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.

Okay.

[music] bonds.

Okay.

[music].

Okay.

[music].

Yes.

Thank you.

Yes.

Okay.

Okay.

[music].

Okay.

No.

[music].

Okay.

[music].

Okay.

[music].

Okay.

[music] component.

Okay.

[music].

Okay.

[music].