BALLY'S CORPORATION Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the securities laws. Forward-looking statements are statements as to matters that are not historical facts, and include statements about our plans, objectives, expectations and intentions. Forward-looking statements are not guarantees and are subject to risks and uncertainties. Forward-looking statements are based on our current expectations and assumptions. Although we believe that our expectations and assumptions are reasonable at this time, they should not be regarded as representations that our expectations will be achieved. Actual results may vary materially. Forward-looking statements speak only as of the time of this report and we do not undertake to update or revise them as more information becomes available, except as required by law. Important factors beyond those that apply to most businesses, some of which are beyond our control, that could cause actual results to differ materially from our expectations and assumptions include, without limitation:
•uncertainties surrounding the COVID-19 pandemic, including limitations on our operations, increased costs, changes in customer behaviors, impact on our employees and the ongoing impact of COVID-19 on general economic conditions;
•unexpected costs, difficulties integrating and other events impacting our recently completed and proposed acquisitions and our ability to realize anticipated benefits;
•risks associated with our rapid growth, including those affecting customer and employee retention, integration and controls;
•risks associated with the impact of the digitalization of gaming on our casino operations, our expansion into iGaming and sports betting and the highly competitive and rapidly changing aspects of our businesses generally;
•the very substantial regulatory restrictions applicable to us, including costs of compliance;
•restrictions and limitations in agreements to which we are subject, including our debt; and
•other risks identified in Part I. Item 1A. "Risk Factors" ofBally's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 as filed with theSEC onMarch 10, 2021 and other filings with theSEC . The foregoing list of important factors is not exclusive and does not include matters like changes in general economic conditions that affect substantially all gaming businesses.
You should not to place undue reliance on our forward-looking statements.
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--------------------------------------------------------------------------------Introduction
As disclosed in Note 19 of the condensed consolidated financial statements, the Company's condensed consolidated financial statements as ofSeptember 30, 2021 have been revised to give effect to the correction of an error related to the conversion of cash held in foreign currency to USD which was recorded as an unrealized loss within comprehensive income (loss) instead of within non-operating income (expense) within its consolidated statements of operations in accordance with ASC 830, Foreign Currency Matters, ("ASC 830"). As a result, the Management's Discussion and Analysis of the Company's Financial Condition and Results of Operation set forth below has been revised to give effect to the correction of the accounting error, which was not material to any period presented. In addition, the presentation of Adjusted EBITDA was updated to reflect the Company's current presentation which was revised subsequent to the Original Filing. Otherwise, the information contained in this MD&A is as of the date of the Original Filing and does not reflect any information or events occurring after the date of the Original Filing.
Overview
We are a global casino-entertainment company with a growing omni-channel presence of Online Sports Betting and iGaming offerings. We own and manage 14 land-based casinos in ten states inthe United States . In 2020, we acquired the rights to the name "Bally's" as part of our strategy to become the leadingU.S. full-service sports betting/iGaming company with physical casinos and online gaming solutions united under a single, prominent brand. We took other key steps to build our iGaming and sports betting business in the past year, including entering into a strategic partnership with Sinclair Broadcast Group, Inc. ("Sinclair") to leverage the Bally's brand and combine our sports betting technology with Sinclair's expansive national footprint, which includes 188 local TV stations, 21 regional sports networks (of which 19 have been rebrandedBally's Sports), the STIRR streaming service, the Tennis Channel and five stadium digital TV and internet sports networks. OnOctober 1, 2021 , we acquiredGamesys Group, Plc . ("Gamesys"), a leading international online gaming operator that provides entertainment to a global consumer base. Also in 2021, we have acquired Bally Interactive, formerly Bet.Works, a sports betting platform provider, SportsCaller, a leading B2B free-to-play ("FTP") game provider, Monkey Knife Fight, the third-largest fantasy sports platform inNorth America , theAssociation of Volleyball Professionals ("AVP"), a premier professional beach volleyball organization, andTelescope Inc. ("Telescope"), the leading provider of real-time audience engagement solutions for live events, gamified second screen experiences and interactive livestreams. Our casino properties on a combined basis have 706,426 square feet of gaming space, approximately 15,028 slot machines or VLTs, 501 gaming tables, 72 stadium gaming positions, 71 dining establishments, 37 bars, 3,885 hotel rooms and seven entertainment venues. 2021 Acquisition Update We seek to continue to grow our business by actively pursuing the acquisition and development of new gaming opportunities and reinvesting in our existing operations. We believe that interactive gaming, including mobile sports betting and iGaming, represent a significant strategic opportunity for our future growth. In addition, we seek to increase revenues at our brick and mortar casinos through enhancing the guest experience by providing popular games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service. We believe that our recent and pending acquisitions have expanded and will, in the case of the pending acquisitions, further expand both our operating and digital/interactive footprints, provide us access to the potentially lucrative interactive mobile sports betting and iGaming markets, and diversify us from a financial standpoint, while continuing to mitigate our susceptibility to regional economic downturns, idiosyncratic regulatory changes and increases in regional competition.
Gamesys Acquisition
OnOctober 1, 2021 , we acquired Gamesys, a leadingUK -based global online gaming operator. In connection with the acquisition, Gamesys shareholders received, in the aggregate, 9,773,537 shares of our common stock and approximately £1.544 billion in cash. Based on theOctober 1, 2021 closing price of$53.08 per share of the Company's common stock, and a foreign exchange rate of 1.354, the aggregate consideration paid to former Gamesys shareholders was approximately$2.62 billion , or$518.8 million of the Company's common stock and$2.10 billion in cash. We believe that Gamesys' proven technology platform will foster our continued buildout of our interactive offerings inNorth America , including real-money gaming options in online sports betting and iGaming. Additionally, unifyingBally's and Gamesys' player databases and technologies provides us with one of the largest portfolios of omni-channel cross-selling opportunities, consisting of land-based gaming, online sports betting, iCasino, poker, bingo, daily fantasy sports and free-to- 49 -------------------------------------------------------------------------------- play games. We believe that these offerings, coupled with our media partnership with Sinclair Broadcast Group, position the Company to capitalize on significant growth opportunities in the rapidly expandingU.S. online entertainment and sports betting markets.
Other 2021 Acquisitions
In addition to the Gamesys acquisition, we completed or signed definitive agreements for the following transactions in 2021:
•SportCaller - OnFebruary 5, 2021 , we acquired SportCaller, one of the leading B2B FTP game providers for sports betting and media companies acrossNorth America , theUK ,Europe ,Asia ,Australia , LATAM andAfrica , for$24.0 million in cash and 221,391 shares of our common stock (valued at approximately$12.0 million ), subject to adjustment, and up to$12.0 million in value of additional shares if SportCaller meets certain post-closing performance targets (calculated based on a $USD to Euro exchange ratio of 0.8334). •Monkey Knife Fight - OnMarch 23, 2021 , we acquired MKF for immediately exercisable penny warrants to purchase up to 984,446 of our common shares (subject to adjustment) at closing and contingent penny warrants to purchase up to 787,557 additional of our common shares half of which are issuable on each of the first and second anniversary of closing. The total value of the warrants at signing was$90.0 million . •Bally'sLake Tahoe - OnApril 6, 2021 , we acquiredBally's Lake Tahoe Casino Resort , formallyMontBleu Resort Casino & Spa , inLake Tahoe, Nevada for$14.2 million , payable one year from the closing date, subject to customary post-closing adjustments. •Tropicana Las Vegas - OnApril 13, 2021 , we agreed to purchase theTropicana Las Vegas Hotel and Casino inLas Vegas, Nevada from GLPI. The purchase price for the Tropicana property's non-land assets is$150 million . In addition, we agreed to lease the land underlying the Tropicana property from GLPI for an initial term of 50 years at annual rent of$10.5 million , subject to increase over time. We also will enter into a sale-and-leaseback with GLPI relating to ourBally's Black Hawk, formerlyBlack Hawk Casinos , properties and theBally's Quad Cities property for$150 million . The lease will have initial annual fixed rent of$12.0 million , subject to increase over time. •Bally Interactive - OnMay 28, 2021 , we acquired Bally Interactive, formally Bet.Works Corp. , for approximately$71.6 million in cash and 2,084,765 of our common shares, subject in each case to customary post-closing adjustments. •Bally'sEvansville - OnJune 3, 2021 , we acquired theBally's Evansville casino from Caesars Entertainment, Inc. The total purchase price was$139.7 million , subject to customary post-closing adjustments.
•Bally's Quad Cities - On
•Association of Volleyball Professionals ("AVP") - On
•Telescope Inc. ("Telescope") - On August 12, 2021 we acquired Telescope, the
leading provider of real-time audience engagement solutions for live events,
gamified second screen experiences and interactive livestreams.
•Degree 53 Limited ("Degree 53") - On October 25, 2021 we acquired Degree 53, a
UK -based creative agency that specializes in multi-channel website and
personalized mobile app and software development for the online gambling and
sports industries.
Operating Structure
As of September 30, 2021 , the Company had four operating segments; East, West,
Bally Interactive and Bally's Arapahoe Park . In the second quarter of 2021, we
changed our management structure to better align with our strategic growth
initiatives in light of recent and pending acquisitions, which resulted in the
re-alignment of our operating and reportable segments. The properties included
within the East and West reportable segments, are as follows:
•East - includes
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•West - includes Hard Rock Biloxi, Bally's Vicksburg , Bally's Kansas City ,
Bally's Shreveport , Bally's Black Hawk, Bally's Lake Tahoe , and Bally's Quad
Cities
Bally Interactive, which includes SportCaller, MKF, Bally Interactive, AVP,
Telescope, our online and mobile sports betting operations, and Bally's Arapahoe
Park , were determined to be immaterial operating segments and are therefore,
included in the "Other" category along with shared services provided by Twin
River Management Group (our management subsidiary).
We are currently evaluating the acquisition of Gamesys for segment reporting
purposes, but it is expected that it will be reported as International
Interactive and our existing operating segment Bally Interactive, will be
reported as North America Interactive. It is expected that the pending
acquisition of
Our agreements with Sinclair provide for a long-term strategic partnership that
combines our vertically integrated, proprietary sports betting technology and
expansive market access footprint with Sinclair's premier portfolio of local
broadcast stations and live regional sports networks ("RSNs"), STIRR streaming
service, its popular Tennis Channel, and digital and over-the-air television
network, Stadium. Bally's and Sinclair will partner to create unrivaled sports
gamification content on a national scale, positioning Bally's as a leading
omni-channel gaming company with physical casinos and online sports betting and
iGaming solutions united under a single brand.
Commencing
OnApril 12, 2021 , we announced that we had entered into a memorandum of understanding with Sinclair to work collectively to facilitate the production and broadcast ofBally's produced content during non-game windows. Together, we will also explore opportunities to includeBally's programming in Sinclair-owned media platforms and affiliates other than the Bally Sports RSNs, which may include Sinclair's Tennis Channel and Stadium network assets.
Enabling Legislation and proposed Joint Venture with IGT in
OnJune 11, 2021 , the Governor ofRhode Island signed into law the Marc A. Crisafulli Economic Development Act, which among other things, authorizes and directs the state to enter into and amend contracts with the Company and results in changes to our Regulatory Agreement inRhode Island , including an increase in the ratios applicable to us and greater flexibility to complete sale-leaseback transactions. In addition, our master contract withRhode Island will be extended on existing terms untilJune 30, 2043 , and we have committed to investing$100 million inRhode Island over this extended term, including an expansion and the addition of new amenities atBally's Twin River . This legislation authorizes a joint venture withInternational Gaming Technology PLC ("IGT") to become a licensed technology provider and supply theState of Rhode Island with all VLTs at bothBally's Twin River andBally's Tiverton for a 20-year period startingJuly 1, 2023 . IGT would own 60% of the joint venture. As ofJuly 1, 2021 , until the joint venture is operating, we will supply 23% of all VLTs in return for 7% net terminal income from the machines.
COVID-19 Pandemic
The COVID-19 pandemic has significantly impacted, and is likely to continue to impact, our business in a material manner. As ofMarch 16, 2020 , all of our properties at the time were temporarily closed as a result of the COVID-19 pandemic. Our properties began to reopen in mid-2020 in some capacity and remained open for the rest of 2020, with the exception ofBally's Twin River andBally's Tiverton which closed again fromNovember 29, 2020 throughDecember 20, 2020 . All of our properties have reopened with minimal restrictions. Our revenues have begun to recover due to the recent increase in consumer confidence, reduction in travel restrictions, and faster than anticipated vaccine roll-out, and our operations are increasingly operating with less and less restrictions. 51 -------------------------------------------------------------------------------- While we are working closely with government officials on operational aspects of our re-opened properties and our desire to get additional amenities online, we cannot predict the duration of any limitations the government or we may impose on our operations. Continuing restrictions on our operations, the economic uncertainty that COVID-19 continues to cause and the personal risk tolerances of our customers have caused, and may continue to cause, our business to be negatively impacted. In light of the foregoing, we are unable to determine when, or if, all our properties will return to pre-pandemic demand.
Key Performance Indicator
The main key performance indicator used in managing our business is adjusted
earnings before interest, taxes, depreciation and amortization ("Adjusted
EBITDA"), a non-GAAP measure. Adjusted EBITDA is defined as earnings for the
Company, or where noted our reporting segments, before, in each case, interest
expense, net of interest income, provision (benefit) for income taxes,
depreciation and amortization, non-operating income, acquisition, integration
and restructuring expense, share-based compensation, and certain other gains or
losses as well as, when presented for our reporting segments, an adjustment
related to the allocation of corporate cost among segments.
We use Adjusted EBITDA to analyze the performance of our business and it is used
as a determining factor for performance based compensation for members of our
management team. We have historically used Adjusted EBITDA when evaluating
operating performance because we believe that the inclusion or exclusion of
certain recurring and non-recurring items is necessary to provide a full
understanding of our core operating results and as a means to evaluate
period-to-period performance. Also, we present Adjusted EBITDA because it is
used by some investors and creditors as an indicator of the strength and
performance of ongoing business operations, including our ability to service
debt, and to fund capital expenditures, acquisitions and operations. These
calculations are commonly used as a basis for investors, analysts and credit
rating agencies to evaluate and compare operating performance and value
companies within our industry. Adjusted EBITDA information is presented because
management believes that it is a commonly used measure of performance in the
gaming industry and that it is considered by many to be a key indicator of our
operating results. Management believes that while certain items excluded from
Adjusted EBITDA may be recurring in nature and should not be disregarded in
evaluating our earnings performance, it is useful to exclude such items when
comparing current performance to prior periods because these items can vary
significantly depending on specific underlying transactions or events that may
not be comparable between the periods presented or they may not relate
specifically to current operating trends or be indicative of future results.
Adjusted EBITDA should not be construed as an alternative to GAAP net income,
its most directly comparable GAAP measure, as an indicator of our performance.
In addition, Adjusted EBITDA as used by us may not be defined in the same manner
as other companies in our industry, and, as a result, may not be comparable to
similarly titled non-GAAP financial measures of other companies.
Third Quarter and First Nine Months 2021 Results
We reported revenue and income from operations of$314.8 million and$27.7 million , respectively, for the three months endedSeptember 30, 2021 , compared to revenue and loss from operations of$116.6 million and$23.4 million , respectively, for the same period last year. We reported revenue and income from operations of$774.8 million and$137.7 million , respectively, for the nine months endedSeptember 30, 2021 , compared to revenue and loss from operations of$254.7 million and$0.7 million , respectively for the same period last year. As of the third quarter of 2021, our properties have returned to full capacity and are operating under minimal restrictions. In the prior year, our properties were closed from mid-March intoJune 2020 .
Other notable factors affecting our results for the three and nine months ended
•$150.6 million of aggregate revenue from acquisitions in the fourth quarter of 2020, includingBally's Atlantic City ($46.8 million ) andBally's Shreveport ($28.7 million ), and acquisitions in the first nine months of 2021, includingBally's Evansville ($40.1 million ),Bally's Quad Cities ($12.3 million ),Bally's Lake Tahoe ($11.3 million ), and those in the Bally Interactive operating segment ($11.4 million ); •$304.4 million of aggregate revenue from acquisitions completed in the fourth quarter of 2020, includingBally's Atlantic City ($108.4 million ) andBally's Shreveport ($90.6 million ), and acquisitions in the first nine months of 2021, includingBally's Evansville ($51.8 million ),Bally's Lake Tahoe ($21.0 million ) andBally's Quad Cities ($14.6 million ), and those in the Bally Interactive operating segment ($18.0 million ).
•$53.4 million gain on sale-leaseback in connection with our sale of the Dover Downs property to GLPI during the second quarter of 2021;
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•$23.1 million gain on bargain purchases during the nine months ended
Results of Operations
The following table presents, for the periods indicated, certain revenue and income items:
Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2021 2020 2021 2020
Total revenue $ 314.8 $ 116.6 $ 774.8 $ 254.7
Income (loss) from operations 27.7 23.4 137.7 (0.7)
Net (loss) income (57.6) 6.7 0.6 (25.7)
The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
Gaming, racing, hotel, food and beverage, and
other expenses 36.7 % 31.4 % 35.1 % 37.4 %
Advertising, general and administrative 45.4 % 37.7 % 41.9 % 46.2 %
Goodwill and asset impairment - % - % 0.6 % 3.4 %
Gain on sale-leaseback - % - % (6.9) % - %
Other operating costs and expenses (0.2) % 2.3 % 2.8 % 2.3 %
Depreciation and amortization 9.2 % 8.5 % 8.7 % 11.0 %
Total operating costs and expenses 91.2 % 80.0 % 82.2 % 100.3 %
Income (loss) from operations 8.8 % 20.0 % 17.8 % (0.3) %
Other income (expense)
Interest income 0.2 % - % 0.2 % 0.1 %
Interest expense (10.1) % (14.5) % (9.6) % (17.2) %
Change in value of naming rights liabilities 2.2 % - % (0.2) % - %
Gain (adjustment) on bargain purchases (0.3) % - % 3.0 % - %
Loss on extinguishment of debt (6.2) % - % (2.5) % - %
Foreign exchange loss, net (13.6) % - % (5.6) % - %
Other, net (1.0) % - % (0.8) % - %
Total other expense, net (28.8) % (14.5) % (15.5) % (17.0) %
(Loss) income before provision for income taxes (20.0) % 5.6 % 2.2 % (17.3) %
(Benefit) provision for income taxes (1.7) % (0.2) % 2.2 % (7.2) %
Net (loss) income (18.3) % 5.8 % 0.1 % (10.1) %
____________________________________________________________________________
Note: Amounts in table may not subtotal due to rounding.
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--------------------------------------------------------------------------------Segment Performance
The following table sets forth certain financial information associated with results of operations for the three and nine months endedSeptember 30, 2021 and 2020. Non-gaming revenue includes hotel, food and beverage and other revenue. Non-gaming expenses include hotel, food and beverage and other expenses. All amounts are before any allocation of corporate costs. (In thousands, except percentages) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change
Revenue:
Gaming and Racing revenue East$ 131,644 $ 50,318 $ 81,326 161.6 %$ 310,186 $ 115,894 $ 194,292 167.6 % West 95,674 46,338 49,336 106.5 % 275,928 81,412 194,516 238.9 % Other 2,298 1,616 682 42.2 % 6,270 3,702 2,568 69.4 % Total Gaming and Racing revenue 229,616 98,272 131,344 133.7 % 592,384 201,008 391,376 194.7 % Non-gaming revenue East 45,331 8,747 36,584 418.2 % 98,272 30,954 67,318 217.5 % West 28,929 9,562 19,367 202.5 % 67,262 22,627 44,635 197.3 % Other 10,903 43 10,860 25,255.8 % 16,860 107 16,753 15,657.0 % Total Non-gaming revenue 85,163 18,352 66,811 364.1 % 182,394 53,688 128,706 239.7 % Total revenue 314,779 116,624 198,155 169.9 % 774,778 254,696 520,082 204.2 % Operating costs and expenses: Gaming and Racing expenses East$ 37,686 $ 11,233 $ 26,453 235.5 %$ 83,460 $ 32,835 $ 50,625 154.2 % West 37,780 15,010 22,770 151.7 % 100,356 27,817 72,539 260.8 % Other 1,704 1,434 270 18.8 % 3,958 3,305 653 19.8 % Total Gaming and Racing expenses 77,170 27,677 49,493 178.8 % 187,774 63,957 123,817 193.6 % Non-gaming expenses East 21,485 4,616 16,869 365.4 % 50,273 20,195 30,078 148.9 % West 12,065 4,290 7,775 181.2 % 28,069 11,140 16,929 152.0 % Other 4,906 - 4,906 - % 5,800 3 5,797 193,233.3 % Total Non-gaming expenses 38,456 8,906 29,550 331.8 % 84,142 31,338 52,804 168.5 % Advertising, general and administrative East 65,654 20,476 45,178 220.6 % 154,809 57,999 96,810 166.9 % West 35,039 15,344 19,695 128.4 % 87,459 32,633 54,826 168.0 % Other 42,212 8,176 34,036 416.3 % 82,347 26,962 55,385 205.4 %Total Advertising , general and administrative 142,905 43,996 98,909 224.8 % 324,615 117,594 207,021 176.0 %
Margins:
Gaming and Racing expenses as
a percentage of Gaming and
Racing revenue 34 % 28 % 6 % 32 % 32 % - %
Non-gaming expenses as a
percentage of Non-gaming
revenue 45 % 49 % (4) % 46 % 58 % (12) %
Advertising, general and
administrative as a
percentage of Total revenue 45 % 38 % 7 % 42 % 46 % (4) %
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Three and Nine Months Ended
Revenue As noted above, revenue for the three months endedSeptember 30, 2021 increased 169.9%, or$198.2 million , to$314.8 million , from$116.6 million in the same period last year. Revenue for the nine months endedSeptember 30, 2021 increased 204.2%, or$520.1 million , to$774.8 million , from$254.7 million in the same period last year. Gaming and racing revenue for the three months endedSeptember 30, 2021 increased 133.7%, or$131.3 million , to$229.6 million from$98.3 million in the same period last year. Gaming and racing revenue for the nine months endedSeptember 30, 2021 increased 194.7%, or$391.4 million , from$201.0 million in the same period last year. With less operating restrictions across our properties resulting from developments in the COVID-19 pandemic and an increase in consumer confidence and visitation, we saw gaming revenue grow, and exceed in some cases, pre-pandemic levels. Incremental revenues from our recent acquisitions also contributed to the increase in revenue for the three and nine months endedSeptember 30, 2021 . Revenue from acquisitions which closed in the fourth quarter of 2020, includingBally's Atlantic City andBally's Shreveport , coupled with those that closed in the first nine months of 2021, including SportCaller, MKF, Bally Interactive,Bally's Lake Tahoe ,Bally's Evansville ,Bally's Quad Cities, AVP and Telescope, contributed, in the aggregate,$150.6 million and$304.4 million to total revenue in the three and nine months endedSeptember 30, 2021 , respectively. Refer to Note 5 "Acquisitions" for further information on our recent acquisitions.
Operating costs and expenses
Gaming and racing expenses for the three months endedSeptember 30, 2021 increased$49.5 million , or 178.8%, to$77.2 million from$27.7 million in the prior year comparable period and increased$123.8 million , or 193.6%, to$187.8 million for the nine months endedSeptember 30, 2021 from$64.0 million in the prior year comparable period. This increase was primarily attributable to the inclusion ofBally's Atlantic City andBally's Shreveport , acquired in the fourth quarter of 2020, andBally's Quad Cities,Bally's Evansville andBally's Lake Tahoe , acquired during the second quarter of 2021, which in the aggregate contributed incremental gaming expenses of$38.4 million and$81.5 million for the third quarter and first nine months of 2021. Non-gaming expenses for the three months endedSeptember 30, 2021 increased$29.6 million , or 331.8%, to$38.5 million from$8.9 million in the same period last year. Non-gaming expenses for the nine months endedSeptember 30, 2021 increased$52.8 million , or 168.5%, to$84.1 million from$31.3 million in the same period last year. This increase was primarily attributable to the inclusion ofBally's Atlantic City andBally's Shreveport , acquired in the fourth quarter of 2020, and acquisitions ofBally's Quad Cities,Bally's Evansville andBally's Lake Tahoe , acquired during the second quarter of 2021, which in the aggregate contributed incremental non-gaming expenses of$21.2 million and$44.0 million for the third quarter and first nine months of 2021.
Advertising, general and administrative
Advertising, general and administrative expenses for the three months endedSeptember 30, 2021 increased$98.9 million , or 224.8%, to$142.9 million from$44.0 million in the same period last year. Advertising, general and administrative expenses for the nine months endedSeptember 30, 2021 increased$207.0 million , or 176.0%, to$324.6 million from$117.6 million in the same period last year. This increase year-over-year is primarily due to the additions ofBally's Atlantic City andBally's Shreveport , acquired in the fourth quarter of 2020, and year-to-date 2021 acquisitions ofBally's Quad Cities,Bally's Evansville ,Bally's Lake Tahoe , Bally Interactive, MKF, Telescope, AVP and SportCaller which in the aggregate contributed$77.5 million and$143.8 million to advertising, general and administrative expenses for the third quarter and first nine months of 2021.
Acquisition, integration and restructuring expense
We incurred$6.8 million and$37.5 million of acquisition, integration and restructuring expenses during the three and nine months endedSeptember 30, 2021 , respectively, compared to$2.7 million and$7.0 million in the prior year three and nine month periods, respectively. This increase was driven by costs incurred in connection with our acquisition of Gamesys,$3.7 million and$17.3 million for the three and nine months endedSeptember 30, 2021 , respectively, and acquisitions completed in 2021 which amounted to$1.4 million and$14.0 million for the three and nine months endedSeptember 30, 2021 , respectively. Refer to Note 10 "Acquisition, Integration and Restructuring" for further information. 55 --------------------------------------------------------------------------------
Other operating (income), costs and expenses
During the third quarter and first nine months of 2021, we recorded gains of$7.9 million , and$19.2 million , respectively, primarily attributable to insurance proceeds received due to the effects of Hurricane Zeta which made landfall inLouisiana shutting down our Hard Rock Biloxi property for three days during the fourth quarter of 2020. We also recorded rebranding expense of$0.4 million and$1.7 million during the third quarter and first nine months of 2021, respectively, in connection with our corporate name change toBally's Corporation inNovember 2020 . During the second quarter of 2021, we sold our Dover Downs property to GLPI and recorded a gain on sale-leaseback of$53.4 million and recorded asset impairment charges of$4.7 million related to the Dover Downs andBally's Black Hawk tradenames in connection with our rebranding.
Depreciation and amortization
Depreciation and amortization for the three months endedSeptember 30, 2021 was$29.0 million , an increase of$19.1 million , and$67.5 million for the nine months endedSeptember 30, 2021 , an increase of$39.4 million , each compared to the same period last year. The increase in depreciation and amortization is attributable to the additional properties acquired in 2020 and 2021, including fixed asset additions attributable to our Bally Interactive operating segment.
Income (loss) from operations
Income from operations was$27.7 million for the three months endedSeptember 30, 2021 compared to$23.4 million in the comparable period in 2020. Income from operations was$137.7 million for the nine months endedSeptember 30, 2021 compared to a loss from operations of$0.7 million in 2020.
The three and nine month comparable periods in 2020 were both impacted
negatively by the COVID-19 pandemic with the shut-down of our properties from
mid-March into June. As noted above, during the three and nine months ended
Total other income (expense), net
Total other expense, net for the three months endedSeptember 30, 2021 increased$73.9 million to$90.8 million from$16.9 million the same period last year. This change was driven mainly by an increase in foreign currency losses of$42.9 million and a loss on extinguishment of debt of$19.4 million in connection with the redemption of$210 million of the 6.75% senior notes due 2027, coupled with a$14.9 million increase in interest expense. Refer to Note 11 "Long-Term Debt" for further information. Offsetting these increases was$7.0 million of income recorded to adjust the naming rights liability associated with our contracts with Sinclair Broadcast group to fair value as ofSeptember 30, 2021 . Total other expense, net for the nine months endedSeptember 30, 2021 increased$77.0 million to$120.4 million compared to$43.4 million in the same period last year. This was due to an increase in interest expense of$30.8 million year-over-year due to the timing of borrowings and the increase in foreign currency losses of$43.4 million and loss on extinguishment of debt of$19.4 million , noted above, partially offset by a gain on bargain purchases of$23.1 million in connection with the acquisitions of Tropicana Evansville andBally's Lake Tahoe .
Provision (benefit) for income taxes
Benefit for income taxes for the three months endedSeptember 30, 2021 was$5.4 million compared to$0.2 million for the three months endedSeptember 30, 2020 . The effective tax rate for the quarter was 8.6% compared to 3.8% for the three months endedSeptember 30, 2020 . Provision for income taxes for the nine months endedSeptember 30, 2021 was$16.8 million compared to a benefit from income taxes of$18.4 million for the nine months endedSeptember 30, 2020 . The effective tax rate for the nine months endedSeptember 30, 2021 was 96.6% compared to 41.8% for the nine months endedSeptember 30, 2020 . The increase in the year to date provision for income taxes in 2021 is mostly attributable to the increase in net income in the current year and the removal of the favorable carryback rate available during 2020 as a result of the CARES Act and 2021 discrete items related to the gain on sale leaseback inDelaware and foreign currency translation. 56 --------------------------------------------------------------------------------
Net income (loss) and earnings (loss) per share
Net loss for the three months endedSeptember 30, 2021 was$57.6 million , or ($1.16 ) per diluted share, a decrease of$64.4 million , or 957.4%, from net income of$6.7 million , or$0.22 per diluted share, in the same period last year. As a percentage of revenue, net income decreased from 5.8% for the three months endedSeptember 30, 2020 to net loss of 18.3% for the three months endedSeptember 30, 2021 . Net income for the nine months endedSeptember 30, 2021 was$0.6 million , an increase of$26.3 million , or 102.3%, from a net loss of$25.7 million , or ($0.83 ) per diluted share, in the same period last year. As a percentage of revenue, net income increased to 0.1% for the nine months endedSeptember 30, 2021 from a net loss of 10.1% for the nine months endedSeptember 30, 2020 .
These changes were impacted by the factors noted above.
Adjusted EBITDA by Segment
Consolidated Adjusted EBITDA was$77.8 million for the three months endedSeptember 30, 2021 , up$40.4 million , or 108.0%, from$37.4 million in the same period last year. Consolidated Adjusted EBITDA was$211.2 million for the nine months endedSeptember 30, 2021 , up$162.4 million , or 333.1%, from$48.8 million in the same period last year. Adjusted EBITDA for the East segment for the third quarter of 2021 increased$31.3 million , or 143.2%, to$53.1 million and increased$86.4 million , or 262.8%, to$119.2 million for the nine months endedSeptember 30, 2021 , each compared to the same prior year periods. The third quarter and year to date increases year over year were driven by the inclusion ofBally's Evansville , which was acquired in the second quarter of 2021, coupled with strong results at ourRhode Island and Dover Downs properties. Adjusted EBITDA for the West segment for the third quarter of 2021 increased$20.7 million to$41.8 million and increased$97.9 million , or 310.8%, to$129.4 million for the nine months endedSeptember 30, 2021 , each compared to the same prior year periods. The third quarter increase year over year was driven by the acquisition ofBally's Shreveport , which was acquired in the fourth quarter of 2020, andBally's Quad Cities andBally's Lake Tahoe which were acquired in the second quarter of 2021. The year to date increase year over year was driven byShreveport , which was acquired in the fourth quarter of 2020, and strong results at our Hard Rock Biloxi andBally's Kansas City properties. 57 --------------------------------------------------------------------------------
The following tables reconcile Adjusted EBITDA, a non-GAAP measure, to net income (loss), as derived from our financial statements (in thousands):
Three Months
Ended
East West Other Total
Revenue $ 176,975 $ 124,603 $ 13,201 $ 314,779
Net income (loss) $ 25,386 $ 24,001 $ (107,032) $ (57,645)
Interest expense, net of interest income 6 (1) 31,301 31,306
Provision (benefit) for income taxes 9,077 7,217 (21,694) (5,400)
Depreciation and amortization 5,763 8,279 14,958 29,000
Non-operating (income) expense (1) - - 16,577 16,577
Foreign exchange loss, net - - 42,896 42,896
Acquisition, integration and restructuring - - 6,797 6,797
Strategic initiatives (2) - - 12,471 12,471
Share-based compensation - - 5,449 5,449
Other (3) 1,165 (5,853) 1,086 (3,602)
Allocation of corporate costs 11,686 8,165 (19,851) -
Adjusted EBITDA $ 53,083 $ 41,808 $ (17,042) $ 77,849 __________________________________
(1) Non-operating (income) expense for the applicable periods include: (i) change in value of naming rights liabilities, (ii) gain (adjustment) on bargain purchases, (iii) loss on extinguishment of debt and (iv) other (income) expense, net. (2) Includes costs incurred related to the amended credit agreement and a lump sum one-time contribution of$12.5 million to support a referendum campaign to legalize sports betting in theState of California . (3) Other includes the following items: (i) professional fees and other costs incurred to establish the partnership with Sinclair and acquireBally Interactive, (ii) storm related gains related to insurance recoveries received due to the effects of Hurricane Zeta on the Company's Hard Rock Biloxi property, (iii) rebranding expenses in connection withBally's corporate name change, (iv) business interruption related recoveries, and (v) other individually de minimis expenses. Three Months Ended September 30, 2020 East West Other Total Revenue$ 59,065 $ 55,900 $ 1,659 $ 116,624 Net income (loss)$ 10,702 $ 11,381 $ (15,360) $ 6,723 Interest expense, net of interest income 30 (12) 16,890 16,908 Provision (benefit) for income taxes 3,846 3,155 (7,249) (248) Depreciation and amortization 5,571 4,279 82 9,932 Acquisition, integration and restructuring - - 2,740 2,740 Strategic initiatives(1) - - 332 332 Share-based compensation - - 1,799 1,799 Other (2) (909) (154) 303 (760) Allocation of corporate costs 2,591
2,453 (5,044) - Adjusted EBITDA$ 21,831 $ 21,102 $ (5,507) $ 37,426
__________________________________
(1) Strategic initiatives include costs incurred related to the amended credit
agreement.
(2) Other includes the following non-recurring items: (i) Employee Retention
Credits related to COVID-19, (ii) non-routine legal expenses, (iii) storm
related losses and (iv) other individually de minimis expenses.
58
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Nine Months
Ended
East West Other Total
Revenue $ 408,458 $ 343,190 $ 23,130 $ 774,778
Net income (loss) $ 90,353 $ 77,397 $ (167,158) $ 592
Interest expense, net of interest income 38 (14) 72,855 72,879
Provision (benefit) for income taxes 34,434 23,310 (40,993) 16,751
Depreciation and amortization 17,275 21,695 28,533 67,503
Non-operating (income) expense(1) - - 4,165 4,165
Foreign exchange loss, net - - 43,353 43,353
Acquisition, integration and restructuring - - 37,457 37,457
Strategic initiatives(2) - - 13,241 13,241
Share-based compensation - - 13,833 13,833
Gain on sale-leaseback (53,425) - - (53,425)
Other(3) 4,012 (15,329) 6,174 (5,143)
Allocated corporate costs 26,544 22,365 (48,909) - Adjusted EBITDA$ 119,231 $ 129,424 $ (37,449) $ 211,206
__________________________________
(1) Non-operating (income) expense for the applicable periods include: (i) change in value of naming rights liabilities, (ii) gain (adjustment) on bargain purchases, (iii) loss on extinguishment of debt and (iv) other (income) expense, net. (2) Includes costs incurred related to the amended credit agreement and a lump sum one-time contribution of$12.5 million to support a referendum campaign to legalize sports betting in theState of California . (3) Other includes the following items: (i) asset impairment charges related to the Dover Downs andBally's Black Hawk trade names in connection withBally's rebranding, (ii) professional fees and other costs incurred to establish the partnership with Sinclair and acquire Bally Interactive, (iii) storm related gains related to insurance recoveries received due to the effects of Hurricane Zeta on the Company's Hard Rock Biloxi property, (iv) rebranding expenses in connection withBally's corporate name change, (v) business interruption related recoveries, and (vi) other individually de minimis expenses. Nine Months Ended September 30, 2020 East West Other Total Revenue$ 146,848 $ 104,039 $ 3,809 $ 254,696 Net income (loss)$ 6,602 $ 7,710 $ (40,022) $ (25,710) Interest expense, net of interest income 51 (25) 43,365 43,391 Provision (benefit) for income taxes 2,443 610 (21,483) (18,430) Depreciation and amortization 18,022 9,805 227 28,054 Acquisition, integration and restructuring 20 - 6,964 6,984 Strategic initiatives(1) - - 706 706 Share-based compensation - - 9,468 9,468 Other(2) (2,958) 7,614 (355) 4,301 Allocated corporate costs 8,683 5,794 (14,477) - Adjusted EBITDA$ 32,863 $ 31,508 $ (15,607) $ 48,764
__________________________________
(1) Strategic initiatives include costs incurred related to the amended credit agreement. (2) Other includes the following non-recurring items: (i)Goodwill and asset impairments, (ii) Employee Retention Credits related to COVID-19, (iii) non-routine legal expenses, (iv) storm related losses and (v) other individually de minimis expenses.
Critical Accounting Policies and Estimates
There were no material changes in critical accounting policies and estimates during the period covered by this Quarterly Report on Form 10-Q. Refer to Item 7. of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 for a complete list of our Critical Accounting Policies and Estimates. 59 --------------------------------------------------------------------------------
Recent Accounting Pronouncements
Refer to Note 3. "Recently Adopted and Issued Accounting Pronouncements" in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements that affect us.
Liquidity and Capital Resources
We are a holding company. Our ability to fund our obligations depends on existing cash on hand, cash flow from our subsidiaries and our ability to raise capital. Our primary sources of liquidity and capital resources have been cash on hand, cash flow from operations, borrowings under our revolving credit facility and proceeds from the issuance of debt and equity securities.
Our strategy has been to maintain moderate leverage and substantial capital resources in order to take advantage of opportunities, to invest in our businesses and acquire properties at what we believe to be attractive valuations. As such, we continued to invest in our land-based casino business and began to build on our interactive/iGaming gaming business despite the COVID-19 pandemic.
OnApril 20, 2021 , we completed a public offering of 12,650,000 common shares at a price to the public of$55.00 per share and the sale of warrants to purchase 909,090 shares to affiliates of Sinclair Broadcast Group, Inc. at the same offering price. The net proceeds from the offering and the warrant sale, after deducting underwriting discounts and estimated expenses, of £485 million or$671 million were placed in escrow and were included in restricted cash as ofSeptember 30, 2021 . OnAugust 20, 2021 , we issued$750.0 million aggregate principal amount of senior notes due 2029 and$750.0 million aggregate principal amount of Senior Notes due 2031 (together, the "New Senior Notes"). Certain of the net proceeds from the New Senior Notes offering are included within restricted cash as ofSeptember 30, 2021 . OnOctober 1, 2021 , upon the closing of the Gamesys Acquisition, the Company assumed the issuer obligation under the New Senior Notes. OnOctober 1, 2021 , we entered into a credit agreement (the "New Credit Agreement") providing for a senior secured term loan facility in an aggregate principal amount of$1.945 billion (the "New Term Loan Facility"), which will mature in 2028, and a senior secured revolving credit facility in an aggregate principal amount of$620.0 million (the "New Revolving Credit Facility"), which will mature in 2026. The New Revolving Credit Facility was undrawn at closing. The credit facilities allow the Company to increase the size of the New Term Loan Facility or request one or more incremental term loan facilities or increase commitments under the New Revolving Credit Facility or add one or more incremental revolving facilities in an aggregate amount not to exceed the greater of$650 million and 100% of the Company's consolidated EBITDA for the most recent four-quarter period plus or minus certain amounts as specified in the New Credit Agreement, including an unlimited amount subject to compliance with a consolidated total secured net leverage ratio. OnOctober 1, 2021 , we acquired Gamesys for 9,773,537 shares of Bally's common stock and approximately £1.544 billion in cash. The acquisition and refinancing of our and Gamesys' debt was funded with, among other sources, the proceeds of the public offering of common shares, the warrant sale, the New Senior Notes and the New Term Loan Facility. We expect that our primary capital requirements going forward will relate to the operation, maintenance and improvement of our properties we acquired along with debt service, rent and acquisitions. Our capital expenditure requirements are expected to moderately increase as a result of the properties acquired in the last 18 months. We have a$40 million planned redevelopment project for theBally's Kansas City property that we acquired in 2020 and we plan to invest$100 million in ourAtlantic City property over five-years. In addition, we signed an agreement to jointly design and build a new casino inCentre County, Pennsylvania , in which we are a 51% owner. We estimate the total cost of the project, including construction, licensing and sports betting/iGaming operations, at$120 million . During the third quarter of 2021, we commenced the expansion and other capital improvements at ourBally's Twin River location related to our partnership with IGT. We expect to use cash on hand and cash generated from operations to meet such obligations. Finally, we agreed to acquire theTropicana Las Vegas for$150 million , which we expect to finance through sale-leaseback transactions with GLPI. For the nine months endedSeptember 30, 2021 , capital expenditures were$67.2 million , compared to$8.6 million in the same period last year. 60
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We expect that our current liquidity, cash flows from operations and borrowings under our credit facility will be sufficient to fund our operations, capital requirements and service our outstanding indebtedness for the next 12 months, including giving effect to our pending acquisitions.
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