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:
•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;
•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
•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, 2021 as filed with theSEC onMarch 1, 2022 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 place undue reliance on our forward-looking statements.
44
--------------------------------------------------------------------------------Overview
We are a global gaming, hospitality and entertainment company with a portfolio
of casinos and resorts and online gaming businesses. We provide our customers
with physical and interactive entertainment and gaming experiences, including
traditional casino offerings, iCasino, online bingo, sportsbook, daily fantasy
sports ("DFS") and free-to-play ("F2P") games.
As of September 30, 2022 , we own and manage 15 land-based casinos and one horse
racetrack in ten states across the United States ("US") operating under Bally's
brand. Our land-based casino operations include approximately 14,400 slot
machines, 600 table games and 5,300 hotel rooms, along with various restaurants,
entertainment venues and other amenities. Certain of our properties are leased
under a master lease agreement with Gaming and Leisure Properties, Inc.
("GLPI"), a publicly traded gaming-focused real estate investment trust
("REIT"). With our acquisition of London -based Gamesys Group Ltd. ("Gamesys") on
October 1, 2021 , we expanded our geographical and product footprints to include
an iGaming business with well-known brands providing iCasino and online bingo
experiences to our global online customer base with concentrations in Europe and
Asia and a growing presence in North America . Our iCasino and online bingo
platforms and games content, sportsbook and F2P games are provided on a
business-to-business ("B2B") as well as a business-to-consumer ("B2C") basis.
Our revenues are primarily generated by these gaming and entertainment
offerings. We own and operate our proprietary software and technology stack
designed to allow us to provide consumers differentiated offerings and exclusive
content.
Our Strategy and Business Developments
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 represents a significant strategic opportunity for the future growth ofBally's . We seek to increase revenues at our casinos and resorts 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 acquisitions have expanded and diversified us from financial and market exposure perspectives, while continuing to mitigate our susceptibility to regional economic downturns, idiosyncratic regulatory changes and increases in regional competition. In 2021, we acquired three casino and resort properties -Bally's Lake Tahoe ,Bally's Evansville andBally's Quad Cities. We also announced plans to construct a land-based casino inCentre County, Pennsylvania , adding to our land-based casino presence. In 2022, we signed an agreement with theCity of Chicago to develop a destination casino resort in downtownChicago, Illinois and we completed the acquisition ofTropicana Las Vegas . Upon the completion of construction in bothCentre County, Pennsylvania andChicago, Illinois , we will own and manage 17 land-based casinos across 11 states.
In addition, we also expanded our interactive business by:
•launching ourBally Sports Network through our partnership with Sinclair, which combines our sports betting technology with Sinclair's expansive footprint. With Bally's brand, the media partnership and the unencumbered skins (gaming licenses) that we have acquired and reserved in our portfolio, we can now provide our customers omni-channel gaming and entertainment across our various physical properties while having a singular online and mobile presence with a brand that is synonymous with gaming, hospitality and entertainment;
•acquiring Gamesys, a leading international online gaming operator that provides gaming entertainment to a global customer base; and
•acquiringBally's Interactive, formerly Bet.Works, and its proprietary technology stack and turnkey solutions, which include marketing, operations, customer service, risk management and compliance. We believe that the Bet.Works acquisition provides us with a suite of advanced omni-channel products, platforms, software and content solutions positioning us to deliver competitive sports betting and iCasino offerings to customers on a national scale. These steps have positioned us to become a leading, full-service, vertically integrated sports betting and iGaming company in the US with physical casinos and online gaming solutions united under a single, leading brand.
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$2.08 billion in cash. 45 -------------------------------------------------------------------------------- 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-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 expanding US online entertainment and sports betting markets.
Operating Structure
Our business is organized into three reportable segments: (1)
Casinos & Resorts - includes our 15 land-based casino properties and one horse racetrack: PropertyName LocationBally's Atlantic City Casino Resort ("Bally's Atlantic City ")Atlantic City, New Jersey Bally's Black Hawk Black Hawk, Colorado Bally's Dover Casino Resort ("Bally's Dover ")Dover, Delaware Bally's Evansville Casino & Hotel ("Bally's Evansville ")Evansville, Indiana Bally's Kansas City Casino ("Bally's Kansas City ")(1)Kansas City, Missouri Bally's Lake Tahoe Casino Resort ("Bally's Lake Tahoe ")Lake Tahoe, Nevada Bally's Quad Cities Casino & Hotel ("Bally's Quad Cities")Rock Island, Illinois Bally's Shreveport Casino & Hotel ("Bally's Shreveport ")Shreveport, Louisiana Bally's Tiverton Casino & Hotel ("Bally's Tiverton ")Tiverton, Rhode Island Bally's Twin River Lincoln Casino Resort ("Bally's Twin River ")Lincoln, Rhode Island Bally's Vicksburg Casino ("Bally's Vicksburg ")Vicksburg, Mississippi Hard Rock Hotel &Casino Biloxi ("Hard Rock Biloxi")Biloxi, Mississippi Tropicana Las Vegas Casino and Resort ("Tropicana Las Vegas")Las Vegas, Nevada Bally's Arapahoe Park Aurora, Colorado
__________________________________
(1) Consists of three casino properties:
North America Interactive - includes the followingNorth America businesses: •Bally's Interactive, a business-to-business-to-consumer ("B2B2C") sportsbook and iCasino platform provider and operator; •Horses Mouth Limited ("SportCaller"), a B2B and F2P game provider for sports betting companies; •Monkey Knife Fight ("MKF"), a B2C DFS platform and operator; •Joker Gaming, known as Live at the Bike, an online subscription streaming service featuring livestream and on-demand poker videos and podcasts; •Association of Volleyball Professionals ("AVP"), a professional beach volleyball organization and host of the longest-running domestic beach volleyball tour; •Telescope, Inc. ("Telescope"), a provider of real-time audience engagement solutions for live events, gamified second screen experiences and interactive livestreams; and •Degree 53, aUnited Kingdom ("UK")-based creative agency that specializes in multi-channel website and personalized mobile app and software development for online gambling and sports industries.
The North America Interactive reportable segment also includes the North American operations of Gamesys.
International Interactive - includes the following businesses inEurope andAsia : •Gamesys, a B2B2C iCasino and online bingo platform provider and operator; and •Solid Gaming, a games content aggregation business.
Refer to Note 18 " Segment Reporting " to our condensed consolidated financial statements for additional information on our segment reporting structure.
46
--------------------------------------------------------------------------------Rhode Island Regulatory Agreement
OnFebruary 17, 2022 , certain of our subsidiaries, theRhode Island Department of Business Regulation ("DBR") and theDivision of Lotteries ("DoL") of theRhode Island Department of Revenue amended and restated our Regulatory Agreement (the "Regulatory Agreement"). The Regulatory Agreement contains financial and other covenants that, among other things, (1) restrict the acquisition of stock and other financial interests in us, (2) relate to the licensing and composition of members of our management and Board of Directors (the "Board"), (3) prohibit certain competitive activities and related-party transactions and (4) restrict our ability to declare or make restricted payments (including dividends), incur additional indebtedness or take certain other actions, if our leverage ratio exceeds 5.50 to 1.00 (in general being gross debt divided by Adjusted EBITDA, each as defined in the Regulatory Agreement). The Regulatory Agreement also provides affirmative obligations, including setting a minimum number of employees that we must employ inRhode Island and providing the DBR and DoL with periodic information updates about us. Among other things, the Regulatory Agreement prohibits us and our subsidiaries from owning, operating, managing or providing gaming specific goods and services to any properties inRhode Island (other thanBally's Twin River andBally's Tiverton ),Massachusetts ,Connecticut orNew Hampshire . A failure to comply with the Regulatory Agreement could subject us to injunctive or monetary relief, payments to theRhode Island regulatory agencies and ultimately the revocation or suspension of our licenses to operate inRhode Island . In addition, our master contracts withRhode Island were extended throughJune 30, 2043 , and allow for consolidation of promotional points betweenBally's Twin River andBally's Tiverton , obligateBally's Twin River to build a 50,000 square foot expansion, obligateBally's Twin River to lease at least 20,000 square feet of commercial space in the city of Providence, and commit us to invest$100 million inRhode Island over this extended term, including an expansion and the addition of new amenities atBally's Twin River .June 2021 legislation enacted inRhode Island authorized a joint venture withInternational Gaming Technology PLC ("IGT") to become a licensed technology provider and supply theState of Rhode Island with all Video Lottery Terminals ("VLTs") at bothBally's Twin River andBally's Tiverton for a 20.5-year period startingJanuary 1, 2023 . IGT will 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 significantly impacted, and could continue to impact, our business in a material manner. Currently, all of our properties are open and operating with minimal restrictions. The pandemic and its consequences dramatically reduced travel and demand for hotel rooms and other casino resort amenities, which had a negative impact on our results. While many restrictions have been relaxed at this point, there is no assurance that a resurgence of future COVID-19 variants will not cause disruption to our business, including the closure of our facilities. In addition, future demand for gaming activities may be negatively impacted by the adverse changes in the perceived or actual economic climate due to the impact of the COVID-19 pandemic. Our business could also be impacted if the disruptions from the COVID-19 pandemic impact construction projects, including our projects inCentre County, Pennsylvania andChicago, Illinois , described above.
Key Performance Indicators
The main key performance indicator used in managing our business is Adjusted
EBITDA. Adjusted EBITDA is defined as earnings for the Company, or where noted
its 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.
47
--------------------------------------------------------------------------------
Adjusted EBITDAR is used outside of our financial statements solely as a
valuation metric. Adjusted EBITDAR is defined as Adjusted EBITDA (as defined
above) for our Casinos & Resorts segment plus rent expense associated with
triple net operating leases. Management believes Adjusted EBITDAR is an
additional metric traditionally used by analysts in valuing gaming companies
subject to triple net leases since it eliminates the effects of variability in
leasing methods and capital structures. This metric is included as supplemental
disclosure because (i) we believe Adjusted EBITDAR is traditionally used by
gaming operator analysts and investors to determine the equity value of gaming
operators and (ii) Adjusted EBITDAR is one of the metrics used by other
financial analysts in valuing our business. We believe Adjusted EBITDAR is
useful for equity valuation purposes because (i) its calculation isolates the
effects of financing real estate, and (ii) using a multiple of Adjusted EBITDAR
to calculate enterprise value allows for an adjustment to the balance sheet to
recognize estimated liabilities arising from operating leases related to real
estate.
Adjusted EBITDA and Adjusted EBITDAR should not be construed as an alternative
to GAAP net income, the most directly comparable GAAP measure, as an indicator
of our performance. In addition, Adjusted EBITDA and Adjusted EBITDAR 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. Adjusted EBITDAR should not be viewed as a measure
of overall operating performance or considered in isolation or as an alternative
to net income because it excludes the rent expense associated with our triple
net operating leases with GLPI and the lease for real estate and land underlying
the operations of the Bally's Lake Tahoe property.
Beginning in the third quarter ended September 30, 2022 , we have revised our
calculation of Adjusted EBITDA to exclude adjustments for launch costs and
preopening expenses. Tables reflected below within "Adjusted EBITDA and Adjusted
EBITDAR by Segment" have been revised to reflect this new presentation.
Third Quarter and First Nine Months 2022 Results
We reported revenue and income from operations of$578.2 million and$53.7 million , respectively, for the three months endedSeptember 30, 2022 , compared to revenue and income from operations of$314.8 million and$27.7 million , respectively, for the same period last year. We reported revenue and income from operations of$1.68 billion and$161.5 million , respectively, for the nine months endedSeptember 30, 2022 , compared to revenue and income from operations of$774.8 million and$137.7 million , respectively, for the same period last year. Our properties are at full capacity and are operating under minimal restrictions and we have seen an increase in consumer confidence, which contributed to such increases. In addition, the increases include incremental revenues and income from our recent acquisitions.
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) 2022 2021 2022 2021
Total revenue $ 578.2 $ 314.8 $ 1,679.0 $ 774.8
Income from operations 53.7 27.7 161.5 137.7
Net income (loss) 0.6 (57.6) 62.0 0.6
48--------------------------------------------------------------------------------
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,
2022 2021 2022 2021
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
Gaming, hotel, food and beverage, retail,
entertainment and other expenses 43.4 % 37.5 % 45.3 % 35.4 %
Advertising, general and administrative 33.2 % 44.6 % 33.1 % 41.6 %
Goodwill and asset impairment - % - % - % 0.6 %
Gain on sale-leaseback, net - % - % (3.0) % (6.9) %
Other operating costs and expenses 1.4 % (0.2) % 1.5 % 2.8 %
Depreciation and amortization 12.8 % 9.2 % 13.6 % 8.7 %
Total operating costs and expenses 90.7 % 91.2 % 90.4 % 82.2 %
Income from operations 9.3 % 8.8 % 9.6 % 17.8 %
Other income (expense)
Interest income - % 0.2 % - % 0.2 %
Interest expense, net of amounts capitalized (9.3) % (10.1) % (8.7) % (9.6) %
Change in value of naming rights liabilities - % 2.2 % 2.0 % (0.2) %
Gain on bargain purchases - % (0.3) % - % 3.0 %
Loss on extinguishment of debt - % (6.2) % - % (2.5) %
Foreign exchange gain (loss) - % (13.6) % 0.1 % (5.6) %
Other, net 0.2 % (1.0) % 0.7 % (0.8) %
Total other income (expense), net (9.0) % (28.8) % (5.9) % (15.5) %
Income (loss) before income taxes 0.3 % (20.0) % 3.8 % 2.2 %
Provision (benefit) for income taxes 0.2 % (1.7) % 0.1 % 2.2 %
Net income (loss) 0.1 % (18.3) % 3.7 % 0.1 %
__________________________________
Note: Amounts in table may not subtotal due to rounding.
Segment Performance
During the fourth quarter of 2021, the Company updated its reportable segments to better align with its strategic growth initiatives in light of recent acquisitions. As a result of this realignment, the Company determined it had three reportable segments:Casinos & Resorts , North America Interactive and International Interactive. Additionally, during the first quarter of 2022 as a result of the segment realignment, the Company changed its methodology for allocating certain corporate operating expenses within advertising, general and administrative expense previously reported in "Other" to directly apply such costs to the segment supported. Prior year amounts have been reclassified to conform to the new segment presentation. The following table sets forth certain financial information associated with results of operations for the three and nine months endedSeptember 30, 2022 and 2021. Non-gaming revenue includes hotel, food and beverage and retail, entertainment and other revenue. Non-gaming expenses include hotel, food and beverage and retail, entertainment and other expenses. All amounts are before any allocation of corporate costs. 49 -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except percentages) 2022 2021 $ Change 2022 2021 $ Change Revenue: Gaming Casinos & Resorts$ 237,951 $ 229,034 $ 8,917 $ 681,472 $ 590,162 $ 91,310 North America Interactive 10,567 2,764 7,803 25,080 4,404 20,676 International Interactive 217,215 - 217,215 677,971 - 677,971 Total Gaming revenue 465,733 231,798 233,935 1,384,523 594,566 789,957 Non-gaming Casinos & Resorts 90,589 74,336 16,253 226,913 164,829 62,084 North America Interactive 11,563 8,645 2,918 30,327 15,383 14,944 International Interactive 10,364 - 10,364 37,253 - 37,253 Total Non-gaming revenue 112,516 82,981 29,535 294,493 180,212 114,281 Total revenue$ 578,249 $ 314,779 $ 263,470 $ 1,679,016 $ 774,778 $ 904,238 Operating costs and expenses: Gaming Casinos & Resorts$ 78,229 $ 76,948 $ 1,281 $ 233,324 $ 187,093 $ 46,231 North America Interactive 12,462 1,449 11,013 34,263 1,908 32,355 International Interactive 106,505 - 106,505 352,872 - 352,872 Total Gaming expenses 197,196 78,397 118,799 620,459 189,001 431,458 Non-gaming Casinos & Resorts 37,691 33,568 4,123 102,354 78,387 23,967 North America Interactive 7,779 6,066 1,713 12,125 6,933 5,192 International Interactive 8,024 - 8,024 26,036 - 26,036 Total Non-gaming expenses 53,494 39,634 13,860 140,515 85,320 55,195 Advertising, general and administrative Casinos & Resorts 108,076 102,776 5,300 311,239 248,420 62,819 North America Interactive 21,899 22,054 (155) 72,965 27,616 45,349 International Interactive 36,737 - 36,737 104,064 - 104,064 Other 25,241 15,670 9,571 67,008 46,174 20,834Total Advertising , general and administrative$ 191,953 $ 140,500 $ 51,453 $ 555,276 $ 322,210 $
233,066
Margins:
Gaming expenses as a percentage of
Gaming revenue 42 % 34 % 45 % 32 %
Non-gaming expenses as a percentage of
Non-gaming revenue 48 % 48 % 48 % 47 %
Advertising, general and administrative
as a percentage of Total revenue 33 % 45 % 33 % 42 %
50--------------------------------------------------------------------------------
Three and Nine Months Ended
Total revenue
Total revenue for the three and nine months ended
Three Months Ended September 30 , Nine
Months Ended
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Gaming $ 465,733 $ 231,798 $ 233,935 100.9 % $ 1,384,523 $ 594,566 $ 789,957 132.9 %
Hotel 45,675 32,903 12,772 38.8 % 106,539 68,277 38,262 56.0 %
Food and beverage 31,724 29,504 2,220 7.5 % 83,147 68,386 14,761 21.6 %
Retail, entertainment and other 35,117 20,574 14,543 70.7 % 104,807 43,549 61,258 140.7 %
Total revenue $ 578,249 $ 314,779 $ 263,470 83.7 % $ 1,679,016 $ 774,778 $ 904,238 116.7 %
Revenue for the three months ended September 30, 2022 increased 83.7%, or $263.5
million , to $578.2 million , from $314.8 million in the same period last year.
Revenue for the nine months ended September 30, 2022 increased 116.7%, or $904.2
million , to $1.68 billion , from $774.8 million in the same period last year. We
saw gaming, hotel, food and beverage, and retail, entertainment and other
revenues grow, as we were able to operate with less restrictions across our
properties compared to the prior year periods resulting from developments in the
COVID-19 pandemic and an increase in consumer confidence.
Incremental revenues from our acquisitions that closed in 2021, which included
Bally's Evansville , Bally's Lake Tahoe , Bally's Quad Cities, Gamesys, and the
majority of the North America Interactive acquisitions (collectively, the "2021
Acquisitions"), drove the increase in revenue year over year, contributing
$232.4 million and $845.5 million to total revenue in the three and nine months
ended September 30, 2022 , respectively. Refer to Note 5 " Acquisitions " for
further information on our recent acquisitions.
Operating costs and expenses
In the three months endedSeptember 30, 2022 , we recorded total operating costs and expenses of$524.6 million , up$237.5 million , or 82.8%, from$287.0 million in the same period last year. Total operating costs and expenses for the nine months endedSeptember 30, 2022 increased$880.5 million , or 138.2%, to$1.52 billion , from$637.0 million in the same period last year. The change in total operating costs and expenses was driven by fluctuations in our gaming and non-gaming expenses, advertising general and administrative costs, acquisition, integration and restructuring expenses and other operating costs and expenses, each described below. We expect our total operating costs and expenses to continue to increase in 2022 as compared to 2021 as a result of the inclusion of our recent acquisitions, most notably, Gamesys.
Gaming and non-gaming expenses
Gaming and racing expenses for the three months endedSeptember 30, 2022 increased$118.8 million , or 151.5%, to$197.2 million from$78.4 million in the prior year comparable period and increased$431.5 million , or 228.3%, to$620.5 million for the nine months endedSeptember 30, 2022 from$189.0 million in the prior year comparable period. These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate,$116.8 million and$416.3 million , during the three and nine months endedSeptember 30, 2022 , respectively. Non-gaming expenses for the three months endedSeptember 30, 2022 increased$13.9 million , or 35.0%, to$53.5 million from$39.6 million in the same period last year. Non-gaming expenses for the nine months endedSeptember 30, 2022 increased$55.2 million , or 64.7%, to$140.5 million from$85.3 million in the same period last year. These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate,$11.7 million and$44.6 million , during the three and nine months endedSeptember 30, 2022 , respectively. 51 --------------------------------------------------------------------------------
Advertising, general and administrative
Advertising, general and administrative expenses for the three months endedSeptember 30, 2022 increased$51.5 million , or 36.6%, to$192.0 million from$140.5 million in the same period last year. Advertising, general and administrative expenses for the nine months endedSeptember 30, 2022 increased$233.1 million , or 72.3%, to$555.3 million from$322.2 million in the same period last year. These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate,$37.2 million and$192.2 million , during the three and nine months endedSeptember 30, 2022 , respectively.
Acquisition, integration and restructuring expense
We incurred$9.3 million and$24.7 million of acquisition, integration and restructuring expenses during the three and nine months endedSeptember 30, 2022 , respectively, compared to$6.8 million and$37.5 million in the prior year three and nine month periods, respectively. The decrease in expense year over year is driven by a reduction in Gamesys acquisition and integration costs offset by an increase in costs attributable toBally's Chicago . Refer to Note 11 " Acquisition, Integration and Restructuring " for further information.
Other operating (income), costs and expenses
During the three and nine months endedSeptember 30, 2022 , we recorded a gain from insurance recoveries, net of losses of$1.3 million and$1.4 million , respectively, primarily attributable to insurance recoveries related to prior litigation matters. During the three and nine months endedSeptember 30, 2021 , the Company recorded a gain from insurance recoveries, net of losses of$7.9 million and$19.2 million , respectively, primarily attributable to insurance proceeds received due to the effects of Hurricane Zeta. The Company recorded rebranding expenses of$0.1 million and$0.4 million during the three months endedSeptember 30, 2022 and 2021, respectively, and$0.5 million and$1.7 million during the nine months endedSeptember 30, 2022 and 2021, respectively. During the nine months endedSeptember 30, 2021 , we also recorded asset impairment charges of$4.7 million related to the Dover Downs andBally's Black Hawk trade names in connection with our rebranding. Additionally, during the nine months endedSeptember 30, 2022 , we sold ourBally's Black Hawk andBally's Quad Cities properties to GLPI and recorded a gain on sale-leaseback of$50.8 million . During the nine months endedSeptember 30 2021 , we sold ourBally's Dover property to GLPI and recorded a gain on sale-leaseback of$53.4 million .
Depreciation and amortization
Depreciation and amortization for the three months endedSeptember 30, 2022 was$73.9 million , an increase of$44.9 million , and$227.5 million for the nine months endedSeptember 30, 2022 , an increase of$160.0 million , each compared to the same period last year. The increase in depreciation and amortization is attributable to the inclusion of our 2021 acquisitions, which contributed an aggregate of$46.3 million and$154.7 million in the three and nine months endedSeptember 30, 2022 , respectively.
Income from operations
Income from operations was$53.7 million for the three months endedSeptember 30, 2022 , compared to$27.7 million in the comparable period in 2021. Income from operations was$161.5 million for the nine months endedSeptember 30, 2022 compared to$137.7 million in 2021. These changes year-over-year were driven by revenue growth resulting from a return in visitation to our properties as COVID-19 restrictions were lifted coupled with a benefit from our 2021 Acquisitions, offset by increased operating expenses.
Other income (expense)
Total other expense for the three months endedSeptember 30, 2022 was$51.9 million , compared to$90.8 million in the same period last year. This change was driven mainly by a decrease in foreign currency losses of$43.1 million and a loss on extinguishment of debt of$19.4 million incurred during the three months endedSeptember 30, 2022 , offset by an increase in interest expense of$21.9 million . 52 -------------------------------------------------------------------------------- Total other expense for the nine months endedSeptember 30, 2022 decreased$21.9 million to$98.5 million compared to$120.4 million in the same period last year. During the first nine months of 2022, there was a decrease in foreign currency exchange losses of$45.6 million and a decrease in losses from the extinguishment of debt of$19.4 million , offset by bargain purchase gains described above, and an increase in interest expense of$71.1 million due to increased borrowings and higher interest rates year-over-year.
Provision (benefit) for income taxes
Provision for income taxes for the three months endedSeptember 30, 2022 was$1.1 million compared to a tax benefit of$5.4 million for the three months endedSeptember 30, 2021 . The effective tax rate for the quarter was 65.7% compared to 8.6% for the three months endedSeptember 30, 2021 . The provision for income taxes for the nine months endedSeptember 30, 2022 was$1.0 million compared to$16.8 million for the nine months endedSeptember 30, 2021 . The effective tax rate for the nine months endedSeptember 30, 2022 was 1.6% compared to 96.6% for the nine months endedSeptember 30, 2021 . The 2022 year to date effective tax rate was lower than the US federal statutory tax rate of 21%, largely due to a tax benefit recorded in foreign jurisdictions during the year, offset by a discrete item related to the gain on sale leaseback transactions inColorado andIllinois . The 2021 year to date effective tax rate was higher than the US federal statutory rate of 21%, largely due to discrete items related to the gain on sale leaseback inDelaware and foreign currency translation.
Net income (loss) and earnings per share
Net income for the three months endedSeptember 30, 2022 was$0.6 million , or$0.01 per diluted share, an increase of$58.2 million , or 101.0%, from net loss of$57.6 million , or$(1.16) per diluted share, in the same period last year. As a percentage of revenue, net income increased from (18.3)% for the three months endedSeptember 30, 2021 to 0.1% for the three months endedSeptember 30, 2022 . Net income for the nine months endedSeptember 30, 2022 was$62.0 million , an increase of$61.4 million , or 10370.1%, from$0.6 million , or$0.01 per diluted share, in the same period last year. As a percentage of revenue, net income decreased to 3.7% for the nine months endedSeptember 30, 2022 from 0.1% for the nine months endedSeptember 30, 2021 .
These changes were impacted by the factors noted above.
Adjusted EBITDA and Adjusted EBITDAR by Segment
Consolidated Adjusted EBITDA was$151.0 million for the three months endedSeptember 30, 2022 , up$73.1 million , or 93.9%, from$77.8 million in the same period last year. Consolidated Adjusted EBITDA was$402.7 million for the nine months endedSeptember 30, 2022 , up$191.5 million , or 90.7%, from$211.2 million in the same period last year. Adjusted EBITDA for theCasinos & Resorts segment for the three months endedSeptember 30, 2022 increased$13.8 million , or 14.8%, to$106.9 million and increased$26.2 million , or 10.8%, to$268.7 million for the nine months endedSeptember 30, 2022 , each compared to the same prior year periods. Casinos & Resorts Adjusted EBITDAR was$118.7 million and$303.4 million in the three and nine months endedSeptember 30, 2022 , respectively, which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below. Adjusted EBITDA for the North America Interactive segment for the three months endedSeptember 30, 2022 decreased$14.1 million to$(19.7) million and decreased$55.8 million to$(59.9) million for the nine months endedSeptember 30, 2022 , each compared to the same prior year periods, mainly due to increased operating costs. Adjusted EBITDA for the International Interactive segment for the three and nine months endedSeptember 30, 2022 was$76.3 million and$232.3 million , respectively, directly attributable to our acquisition of Gamesys onOctober 1, 2021 . 53
--------------------------------------------------------------------------------
The following tables reconcile
Three Months Ended
Casinos & North America International
Resorts Interactive Interactive Other Total
Net income (loss) $ 50,970 $ (22,675) $ 38,121
(1) (8) (89) 53,670 53,572
Provision (benefit) for income taxes 17,394 (4,683) (6,617) (4,957) 1,137
Depreciation and amortization 15,536 8,113 41,880 8,324 73,853
Non-operating (income) expense (1) - (113) (912) (362) (1,387)
Foreign exchange (gain) loss - (1,465) 1,224 (12) (253)
Acquisition, integration and
restructuring - 164 2,713 6,405 9,282
Strategic initiatives(2) 3,061 - - 5,709 8,770
Share-based compensation - - - 6,715 6,715
Other (3) (698) 338 - (954) (1,314)
Allocation of corporate costs 20,643 657 (7) (21,293) -
Adjusted EBITDA $ 106,905 $ (19,672) $ 76,313
11,835
Adjusted EBITDAR $ 118,740 __________________________________
(1) Non-operating (income) expense for the applicable periods include: (i) change in value of naming rights liabilities and (ii) other (income) expense, net. (2) Includes costs incurred for financing related transactions including the recent tender offer process and rent expense related toBally's Black Hawk and Quad Cities properties, as the Company recently entered into sale lease-back transactions associated with these properties to finance theTropicana Las Vegas property acquisition. (3) Other includes the following items: (i) non-routine legal expenses, net of recoveries for matters outside the normal course of business, (ii) rebranding expenses in connection withBally's corporate name change, and (ii) other individually de minimis expenses. (4) Rent expense associated with triple net leases for the Company'sBally's Lake Tahoe ,Bally's Evansville andBally's Dover properties. Three Months Ended September 30, 2021 Casinos & North America Resorts Interactive Other Total Net income (loss)$ 48,777 $ (19,320) $ (87,102) $ (57,645) Interest expense, net of interest income 5 (10) 31,311 31,306 Provision (benefit) for income taxes 16,294 (5,780) (15,914) (5,400) Depreciation and amortization 14,110 6,274 8,616 29,000 Non-operating (income) expense(1) - - 16,577 16,577 Foreign exchange loss - 22 42,874 42,896 Acquisition, integration and restructuring - - 6,797 6,797 Strategic initiatives(2) - 12,500 (29) 12,471 Share-based compensation - - 5,449 5,449 Other(3) (4,688) 77 1,009 (3,602) Allocation of corporate costs 18,604 654 (19,258) - Adjusted EBITDA$ 93,102 $ (5,583) $ (9,670) $ 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. 54 --------------------------------------------------------------------------------
Nine Months Ended
Casinos & North America International
Resorts Interactive Interactive Other Total
Net income (loss) $ 149,768 $ (72,814)
(7) (11) (53) 145,156 145,085
Provision (benefit) for income taxes 53,851 (13,325) (15,183) (24,347) 996
Depreciation and amortization 45,646 24,360 132,255 25,246 227,507
Non-operating (income) expense(1) - (106) (519) (43,690) (44,315)
Foreign exchange (gain) loss - (4,608) 2,381 (21) (2,248)
Acquisition, integration and
restructuring - 940 3,938 19,796 24,674
Strategic initiatives(2) 6,079 - - 8,842 14,921
Share-based compensation - - - 18,132 18,132
Gain on sale-leaseback (50,766) - - - (50,766)
Other(3) 1,718 4,075 - 935 6,728
Allocation of corporate costs 62,407 1,618 - (64,025) -
Adjusted EBITDA $ 268,696 $ (59,871)
34,717
Adjusted EBITDAR $ 303,413 __________________________________
(1) Non-operating (income) expense for the applicable periods include: (i) change in value of naming rights liabilities, (ii) gain (adjustment) on bargain purchases, and (iii) other (income) expense, net. (2) Includes costs incurred related to financing related transactions including the recent tender offer process, costs incurred to address the Standard General takeover bid, and rent expense related toBally's Black Hawk and Quad Cities properties, as the Company recently entered into sale lease-back transactions associated with these properties to finance theTropicana Las Vegas property acquisition. (3) Other includes the following items: (i) rebranding expenses in connection withBally's corporate name change (ii) non-routine legal expenses, net of recoveries for matters outside the normal course of business, and (iii) other individually de minimis expenses. (4) Rent expense associated with triple net leases for the Company'sBally's Lake Tahoe ,Bally's Evansville andBally's Dover properties. Nine Months Ended September 30, 2021 Casinos & North America Resorts Interactive Other Total Net income (loss)$ 161,522 $ (22,091) $ (138,839) $ 592 Interest expense, net of interest income 24 (12) 72,867 72,879 Provision (benefit) for income taxes 57,744 (6,385) (34,608) 16,751 Depreciation and amortization 39,171 10,691 17,641 67,503 Non-operating (income) expense(1) - - 4,165 4,165 Foreign exchange (gain) loss - (13) 43,366 43,353 Acquisition, integration and restructuring - - 37,457 37,457 Strategic initiatives(2) - 12,500 741 13,241 Share-based compensation - - 13,833 13,833 Gain on sale-leaseback (53,425) - - (53,425) Other(3) (11,317) 77 6,097 (5,143) Allocation of corporate costs 48,809 1,140 (49,949) - Adjusted EBITDA$ 242,528 $ (4,093) $ (27,229) $ 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. 55 --------------------------------------------------------------------------------
Critical Accounting Estimates
There were no material changes in critical accounting 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, 2021 for a complete list of our Critical Accounting Estimates.
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
Overview
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 (as defined herein) and proceeds from the issuance of debt and equity securities. We assess liquidity in terms of the ability to generate cash or obtain financing in order to fund operating, investing and debt service requirements. Our primary ongoing cash requirements include the funding of operations, capital expenditures, acquisitions and other investments in line with our business strategy and debt repayment obligations and interest payments. 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 have continued to invest in our land-based casino business and build on our interactive/iGaming gaming business. We believe that existing cash balances, operating cash flows and availability under our Revolving Credit Facility, will be sufficient to meet funding needs for operating, capital expenditure and debt service purposes.
© Edgar Online, source
