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 Quarterly Report on Form 10-Q 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 attitudes, 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 new interactive 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, could significantly affect our ability to operate our business and our liquidity; 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 withSEC 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.
36
--------------------------------------------------------------------------------Overview
Our objective is to be a leading omni-channel gaming and interactive entertainment company. We are already a leading owner and operator of land-based casinos in eight 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. to leverage the Bally's brand and combine our sports betting technology with Sinclair's expansive national footprint, which includes 188 local TV stations, 19 regional sports networks, the STIRR streaming service, the Tennis Channel and five stadium digital TV and internet sports networks. We also signed definitive agreements to acquire Bet.Works, a sports betting platform provider to operators inColorado ,New Jersey ,Indiana andIowa , and Monkey Knife Fight, the third-largest fantasy sports platform inNorth America . Earlier this year, we acquired SportsCaller, a leading B2B free-to-play ("FTP") game provider. Our properties have 625,700 square feet of gaming space, approximately 13,300 slot machines or VLTs, 457 gaming tables, 72 stadium gaming positions, 64 dining establishments, 33 bars, 3,342 hotel rooms and four entertainment venues.
We are a
Gamesys Combination OnApril 13, 2021 , we announced the terms of the Combination with Gamesys. Gamesys is a leading international online gaming operator that provides entertainment to a global consumer base. Gamesys currently offers bingo and casino games to its players using brands that include Jackpotjoy,Virgin Games , Botemania, Vera&John, Heart Bingo, Megaways,Rainbow Riches Casino andMonopoly Casino , and focuses on building its diverse portfolio of distinctive and recognizable brands that deliver best-in-class player experience and gaming content. Under the terms of the Combination, Gamesys shareholders would have the option to receive, for each share of Gamesys,1,850 pence in cash or shares of our common stock (at an exchange ratio of 0.343 for each Gamesys share) or a combination of both. Certain of Gamesys' current shareholders holding 25.6% of Gamesys' shares have agreed to receive shares of our common stock in the Combination. The maximum cash consideration payable to Gamesys shareholders, if only the former Gamesys founders and Gamesys executives elect to receive shares of our common stock, would be £1.6 billion. In order to be effective, among other things, the transaction must be approved by a majority of the Gamesys shareholders who are present and voting, whether in person or by proxy, at a court meeting and who represent 75% or more in value of the votes cast at the Court Meeting. Additionally, a special resolution implementing the transaction must be passed by Gamesys shareholders representing at least 75% of votes cast at a general meeting. The Combination is also conditioned upon our shareholders approving our issuance of common stock to Gamesys shareholders, as well as regulatory approvals and other customary closing conditions.
Strategic Rationale for Combination
We believe that the online gambling and sports betting sector in theU.S. continues to exhibit many characteristics that are structurally attractive with a steep anticipated growth trajectory as favorable regulatory progress throughout theU.S. leads to the opening of new sports betting and iGaming markets. This opportunity is reflected in industry analysts estimating a potential total addressable market size in excess of$45 billion .Bally's and Gamesys believe that having a combination of both proven, developed technology and land-based platforms across keyU.S. states, with global brands, existing customer bases and complementary product offerings will be key to taking advantage of these growth opportunities. 37 --------------------------------------------------------------------------------
Financing for the Combination
We have obtained a binding commitment pursuant to a commitment letter and an interim facilities agreement from Deutsche Bank AG,London Branch,Goldman Sachs USA and Barclays Bank PLC and other banks (the "Lenders") to provide fully committed bridge term loan facilities up to £1,435.0 million €336.0 million (collectively, the "Bridge Commitment") to fund the Combination. The availability of the borrowings under the commitment letter (or if the commitments under the commitment letter are not funded on the closing date, the interim facilities agreement) is subject to the satisfaction of certain customary conditions for the financing of an acquisition of an English public company Borrowings will be used to pay the fees, costs and expenses in connection with this facility and then to partially fund the cash portion of the purchase price of the Combination. OnApril 20, 2021 , we announced the completion of an underwritten public offering of common stock. We issued a total of 12.65 million shares of common stock in the offering. OnApril 20, 2021 , we escrowed £485.46 million of the net proceeds of the offering (including from the warrant issuance described below), reducing the Bridge Commitment by that amount.
In order to manage the risk of appreciation of the GBP denominated purchase price the Company has entered into foreign exchange forward contracts.
OnApril 13, 2021 , GLPI irrevocably committed to purchase shares of the Company's common stock or, subject to regulatory requirements, warrants, with a value of up to$500.0 million (the "GLPI Commitment"), at a price per share based on volume-weighted average price determined over a period of time prior to issuance. We may use the proceeds to fund a portion of the aggregate cash consideration for the Combination, acquisition costs and fees and expenses incurred related to the Combination, or to refinance the existing indebtedness of Gamesys. To the extent GLPI incurs debt under its revolving credit facilities to fund the GLPI Commitment, we will reimburse GLPI for GLPI's out-of-pocket cash interest paid on such borrowings for up to 18 months after funding. Proceeds from any capital raise placed in escrow for use in connection with the Combination in excess of$850 million reduces the GLPI Commitment on a dollar-for-dollar basis. At GLPI's election, rather than issuingBally's common shares, funding under the GLPI Commitment will be deemed to be a prepayment on sale-leaseback transactions with respect to one or more designated properties. Unless otherwise agreed by the parties, (1) the rent payable byBally's under each sale-leaseback transactions would be 50% of the relevant property's trailing 12-month consolidated EBITDA, adjusted as may be agreed by the parties and (2) the real estate purchase price will be 12.5x the rent payable in clause (1), less an amount to reflect the interim funding costs of GLPI.
On
In lieu of or in addition to the Bridge Commitment and the GLPI Commitment, we may pursue one or more offerings of private placements of debt or equity securities, sale and leaseback transactions and/or bank financings, in each case, to finance the Combination (including the refinancing of existing indebtedness of Gamesys) and/or refinance our existing credit facilities and senior unsecured notes. 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. •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). 38 -------------------------------------------------------------------------------- •Monkey Knife Fight - OnMarch 23, 2021 , we acquired MKF for (1) immediately exercisable penny warrants to purchase up to 984,446Bally's common shares (subject to adjustment) at closing and (2) contingent penny warrants to purchase up to 787,557 additionalBally's 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 . •MontBleu - OnApril 6, 2021 , we acquiredMontBleu Resort Casino & Spa operations inLake Tahoe, Nevada for$15.0 million , from Caesars, subject to required regulatory approvals and satisfaction of other customary closing conditions. •Tropicana Las Vegas - OnApril 13, 2021 , we agreed to purchase theTropicana Las Vegas Hotel and Casino inLas Vegas, Nevada from GLPI valued at approximately$300.0 million . 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 will also will enter into a sale-and-leaseback with GLPI relating to ourBlack Hawk Casinos properties and the Jumer's property for a cash purchase price of$150 million payable by GLPI. The lease will have initial annual fixed rent of$12.0 million , subject to increase over time.
Operating Structure
As ofMarch 31, 2021 , the Company had seven operating segments;Rhode Island , Mid-Atlantic, Southeast, West, SportCaller, MKF, andMile High USA . Beginning in the third quarter of 2020, 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. For purposes of financial reporting, our four reportable segments include the following properties: •Rhode Island - includesTwin River Casino Hotel andTiverton Casino Hotel •Mid-Atlantic - includes Dover Downs andBally's Atlantic City •Southeast - includes Hard Rock Biloxi,Casino Vicksburg andShreveport •West - includesCasino KC and theBlack Hawk Casinos As ofMarch 31, 2021 , the Company has reported the immaterial operating segments ofMile High USA , SportCaller, and MKF, and shared services provided byTwin River Management Group (our management subsidiary), in the "Other" category. The Company is expecting to create a newBally's Interactive division, which will include SportCaller, Monkey Knife Fight, Bet.Works and Gamesys and will be evaluated for segment reporting considerations upon the close of pending acquisitions. The Company is currently evaluating the impact that our pending casino acquisitions and developments will have on our operating and reporting segments. It is expected that MontBleu will be reported with the West, but no determination has been made for Tropicana Evansville, Jumer's, theCentre City ,Pennsylvania development project (explained below) orTropicana Las Vegas .
Our agreements with Sinclair provide for a long-term strategic partnership for
10 years 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 assets. 39 --------------------------------------------------------------------------------
OnJanuary 30, 2020 , we announced an agreement in principle to form a joint venture withInternational Gaming Technology PLC ("IGT") to become a licensed technology provider and supply theState of Rhode Island with all VLTs at bothTwin River Casino Hotel andTiverton Casino Hotel for a 20-year period startingJuly 1, 2022 . IGT would own 60% of the joint venture. In addition, our master contract withRhode Island would be extended on existing terms untilJune 30, 2043 , and we would commit to investing$100 million inRhode Island over this extended term, including an expansion and the addition of new amenities atTwin River Casino Hotel . This proposed agreement requires theRhode Island State Legislature to enact legislation for the state to enter into or amend contracts with us. The agreement in principle would also result 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. InMay 2020 , the legislation was amended to strengthen our agreement with theState of Rhode Island and IGT and its expected to be adopted late in the second quarter of 2021, although there can be no assurance of this.
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 ofTwin River Casino Hotel andTiverton Casino Hotel which closed again fromNovember 29, 2020 throughDecember 20, 2020 . All of our properties have reopened with varying restrictions based on state mandates. 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. 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.
40
--------------------------------------------------------------------------------First Quarter 2021 Results
We reported revenue and income from operations of$192.3 million and$29.5 million , respectively, for the three months endedMarch 31, 2021 , compared to revenue and loss from operations of$109.1 million and$3.2 million , respectively, for the same period last year. The first quarter of 2021 continued to be negatively affected by the COVID-19 pandemic and the restrictions on our properties. In the prior year, our properties were closed from mid-March intoJune 2020 .
Other notable factors affecting our results for the three months ended
•Revenue increased 76.2% to$192.3 million driven by$78.6 million of aggregate revenue from prior year acquisitions includingCasino KC andCasino Vicksburg ($27.4 million ),Bally's Atlantic City ($25.7 million ) andShreveport ($25.5 million ); •Gain from insurance recoveries, net of losses of$10.7 million primarily attributable to insurance proceeds received due to the effects of Hurricane Zeta in the fourth quarter of 2020 at Hard Rock Biloxi •Strong operational efficiencies which positively impacted margins, a continued a trend noted since re-opening from the pandemic. Income from operations increased$32.6 million , or 1,030.1%,$29.5 million with operating margin increasing 1823 bps to 15.33%; and •Interest expense, net of interest income, increased$9.3 million to$20.8 million due to debt obligations outstanding in each respective period coupled with timing and differences in interest rates.
Results of Operations
The following table presents, for the periods indicated, certain revenue and
income items:
Three Months Ended March 31,
(In millions) 2021 2020
Total revenue $ 192.3 $ 109.1
Income (loss) from operations 29.5 (3.2)
Net loss (10.7) (8.9)
41--------------------------------------------------------------------------------
The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:
Three Months Ended
2021 2020
Total revenue 100.0 % 100.0 %
Gaming, racing, hotel, food and beverage, retail, entertainment and other expenses
34.5 % 40.4 %
Advertising, general and administrative 41.9 % 45.5 %
Goodwill and asset impairment - % 8.0 %
Other operating costs and expenses 1.6 % 0.8 %
Depreciation and amortization 6.7 % 8.2 %
Total operating costs and expenses 84.7 % 102.9 %
Income (loss) from operations 15.3 % (2.9) %
Other income (expense)
Interest income 0.3 % 0.1 %
Interest expense (10.8) % (10.6) %
Change in value of naming rights liabilities (14.3) % - %
Other, net 1.4 % - %
Total other expense, net (23.4) % (10.4) %
Loss before provision for income taxes (8.1) % (13.3) %
Benefit for income taxes (2.5) % (5.2) %
Net loss (5.6) % (8.1) %
____________________________________________________________________________
Note: Amounts in table may not subtotal due to rounding.
42
--------------------------------------------------------------------------------Segment Performance
The following table sets forth certain financial information associated with results of operations for the three months endedMarch 31, 2021 and 2020. Non-gaming revenue includes hotel, food and beverage 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. (In thousands, except percentages) Three Months Ended March 31, 2021 2020 $ Change % Change Revenue: Gaming and Racing revenue Rhode Island$ 44,580 $ 43,962 $ 618 1.4 % Mid-Atlantic 33,111 12,507 20,604 164.7 % Southeast 52,201 16,718 35,483 212.2 % West 24,033 3,788 20,245 534.5 % Other 1,353 1,818 (465) (25.6) % Total Gaming and Racing revenue 155,278 78,793 76,485 97.1 % Non-gaming revenue Rhode Island 6,100 12,317 (6,217) (50.5) % Mid-Atlantic 15,243 8,579 6,664 77.7 % Southeast 12,374 8,764 3,610 41.2 % West 2,109 675 1,434 212.4 % Other 1,162 20 1,142 5,710.0 % Total Non-gaming revenue 36,988 30,355 6,633 21.9 % Total revenue 192,266 109,148 83,118 76.2 % Operating costs and expenses: Gaming and Racing expenses Rhode Island$ 8,638 $ 11,257 $ (2,619) (23.3) % Mid-Atlantic 11,842 4,633 7,209 155.6 % Southeast 17,189 6,517 10,672 163.8 % West 8,657 1,991 6,666 334.8 % Other 928 1,222 (294) (24.1) % Total Gaming and Racing expenses 47,254 25,620 21,634 84.4 % Non-gaming expenses Rhode Island 2,661 7,460 (4,799) (64.3) % Mid-Atlantic 9,703 5,956 3,747 62.9 % Southeast 5,041 4,976 65 1.3 % West 1,224 105 1,119 1,065.7 % Other 526 1 525 52,500.0 % Total Non-gaming expenses 19,155 18,498 657 3.6 % Advertising, general and administrative Rhode Island 15,405 19,023 (3,618) (19.0) % Mid-Atlantic 24,687 7,667 17,020 222.0 % Southeast 15,961 8,700 7,261 83.5 % West 7,135 1,997 5,138 257.3 % Other 17,311 12,222 5,089 41.6 %Total Advertising , general and administrative 80,499 49,609 30,890 62.3 %
Margins:
Gaming and Racing expenses as a percentage of Gaming and Racing revenue
30 % 33 % (3) %
Non-gaming expenses as a percentage of Non-gaming
revenue 52 % 61 % (9) %
Advertising, general and administrative as a
percentage of Total revenue 42 % 45 % (3) %
43--------------------------------------------------------------------------------
Three Months Ended
Revenue
Revenue for the three months endedMarch 31, 2021 increased 76.2% to$192.3 million , from$109.1 million in the same period last year. Gaming and racing revenue increased$76.5 million , or 97.1%, to$155.3 million and non-gaming revenue increased$6.6 million , or 21.9%, to$37.0 million , both for the three months endedMarch 31, 2021 compared to the same period last year. The increase in revenue year-over-year was driven by revenue from acquisitions which closed in the second half of 2020, includingCasino KC andCasino Vicksburg , acquired onJuly 1, 2020 ,Bally's Atlantic City , acquired onNovember 18, 2020 , andShreveport acquired onDecember 23, 2020 , which in the aggregate contributed$78.6 million to total revenue in the first quarter 2021.The Black Hawk Casinos , which were acquired onJanuary 23, 2020 , also contributed incremental revenue of$0.6 million in the first quarter 2021 compared to the same period last year. This increase was offset by the negative impact of continued COVID-19 related restrictions on our operations and service offerings as compared to the first quarter of the prior year, when our properties were shut-down onMarch 16, 2020 intoJune 2020 . Operating costs and expenses Gaming and racing expenses for the three months endedMarch 31, 2021 increased$21.6 million , or 84.4%, to$47.3 million from$25.6 million in 2020. This increase was primarily attributable to the inclusion ofShreveport ,Bally's Atlantic City ,Casino KC andCasino Vicksburg , all acquired in the second half of 2020, which contributed an aggregate$25.0 million of gaming and racing expenses during the three months endedMarch 31, 2021 , partially offset by decreased gaming and racing expenses from our other properties due to the mandated shut-down of our facilities in mid-March of 2020 as of result of the COVID-19 pandemic. Non-gaming expenses for the three months endedMarch 31, 2021 increased$0.7 million , or 3.6%, to$19.2 million from$18.5 million in the same period last year. This slight increase was primarily attributable to the inclusion ofBally's Atlantic City ,Shreveport ,Casino KC andCasino Vicksburg , which were acquired in the second half of 2020 and contributed$9.3 million of non-gaming expenses for the three months endedMarch 31, 2021 offset by a reduction in non-gaming expenses at our other properties attributable to continued restrictions on operations and amenities as a result of the COVID-19 pandemic.
Advertising, general and administrative
Advertising, general and administrative expense for the three months endedMarch 31, 2021 increased$30.9 million , or 62.3%, to$80.5 million from$49.6 million in the same period last year. The increase in advertising, general and administrative expense year-over-year is primarily due to the additions ofBally's Atlantic City ,Shreveport ,Casino KC andCasino Vicksburg , all acquired in the second half of 2020, which contributed$30.9 million of advertising, general and administrative expenses in the quarter.
Acquisition, integration and restructuring
We incurred$12.3 million of acquisition, integration and restructuring expense during the three months endedMarch 31, 2021 , compared to$1.8 million in the same period last year. This increase was driven by$6.2 million of expenses incurred in the first quarter of 2021 attributable to our offer to acquire Gamesys onApril 13, 2021 ,$2.8 million of costs related to the acquisitions of MKF and SportCaller and$1.2 million of costs related to ourRichmond, VA development proposal, which we are no longer pursing at this time. --------------------------------------------------------------------------------
Other operating costs and expenses
During the three months endedMarch 31, 2021 , the Company recorded Gain from insurance recoveries, net of losses of$10.7 million 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. Additionally, during the three months endedMarch 31, 2021 , we recorded rebranding expense of$0.9 million in connection with our corporate name change toBally's Corporation inNovember 2020 . During the three months endedMarch 31, 2020 , we recorded an impairment charge of$8.7 million as a result of an impairment analysis performed on goodwill and intangible assets acquired in connection with our acquisition of theBlack Hawk Casinos due to current and expected future economic and market conditions surrounding the COVID-19 pandemic. Additionally, during the first quarter of 2020, we recorded a gain on insurance recoveries of$0.9 million related to proceeds received for a damaged roof at the Company'sArapahoe Park racetrack.
Depreciation and amortization
Depreciation and amortization for the three months endedMarch 31, 2021 was$12.8 million , an increase of$3.8 million , or 42.4%, compared to the same period last year. The increase in depreciation and amortization is attributable to the addition of properties acquired in the second half of 2020, includingShreveport ,Casino KC ,Casino Vicksburg andBally's Atlantic City , as well as expenses from SportCaller, which contributed an aggregate$4.7 million of depreciation and amortization expense in the first quarter of 2021.
Income (loss) from operations
Income from operations was$29.5 million , or 15.33% as a percentage of total revenue, for the three months endedMarch 31, 2021 compared to a loss from operations of$3.2 million , or (2.90)% as a percentage of total revenue, in the same period last year. This increase in income from operations is due to the benefit from the acquisitions ofShreveport ,Casino KC andCasino Vicksburg which contributed$14.0 million to income from operations. Additionally, we are now experiencing higher operating margins as a result of cost reduction efforts we made throughout 2020 in an effort to minimize variable costs and fixed property level costs and corporate expenses to protect our financial position in response to the COVID-19 pandemic.
Other income (expense)
Total other expense increased$33.6 million to$45.0 million for the first quarter of 2021 from other expense of$11.4 million in the same period last year. The increase in other expense was driven primarily by expense associated with the change in naming rights liability associated with our contracts with Sinclair Broadcast group of$27.4 million . Refer to Note 1 "General Information" for further information. Additionally, interest expense was$20.8 million for the first quarter of 2021, an increase of$9.3 million from$11.5 million in the same period last year, due to increased borrowings and higher interest rates year-over-year.
Benefit for income taxes
Benefit for income taxes for the three months endedMarch 31, 2021 decreased$0.8 million year-over-year. The effective tax rate for the quarter was 31.1% compared to 38.9% for the three months endedMarch 31, 2020 . This decrease is primarily attributable to the removal of the favorable carryback rate available during 2020 as a result of the CARES Act, offset by less federal benefit on state taxes. In addition, there was a tax windfall on equity awards during the three months endedMarch 31, 2021 versus a tax shortfall during the three months endedMarch 31, 2020 .
Net loss and net loss per share
Net loss for the three months endedMarch 31, 2021 was$10.7 million , or$0.30 per diluted share, compared to a net loss$8.9 million , or$0.28 per diluted share, for the three months endedMarch 31, 2020 . --------------------------------------------------------------------------------
Adjusted EBITDA by Segment
Consolidated Adjusted EBITDA was$52.5 million for the three months endedMarch 31, 2021 , up$30.4 million , or 137.9%, from$22.1 million in the same period last year. Adjusted EBITDA for the Southeast segment increased$21.1 million , or 398.9%, to$26.4 million from$5.3 million in the same period last year driven by the acquisitions ofShreveport andCasino Vicksburg in the second half of 2020. The West segment increased$8.8 million to$9.2 million from$0.4 million in the first quarter last year driven by the acquisition ofCasino KC onJuly 1, 2020 . Adjusted EBITDA for theRhode Island increased$5.4 million , or 29.3%, to$24.0 million in the first quarter of 2021 mainly due to cost reduction efforts in the response to the COVID-19 pandemic. Adjusted EBITDA for the Mid-Atlantic segment decreased$0.7 million to$2.1 million in the first quarter of 2021 from$2.8 million in the same period last year as negative performance atBally's Atlantic City , which was acquired in late 2020 and typically loses money in winter months, more than offset year-over-year adjusted EBITDA increases at Dover Downs.
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
Rhode Island Mid-Atlantic Southeast West Other Total
Revenue $ 50,680 $ 48,354 $ 64,575 $ 26,142 $ 2,515 $ 192,266
Net income (loss) $ 12,738 $ (1,469)
- 19 (8) - 20,263 20,274
Provision (benefit) for income
taxes 4,609 (815) 6,648 1,504 (16,776) (4,830)
Depreciation and amortization 3,539 2,031 4,318 1,654 1,244 12,786
Non-operating income - - - - (2,671) (2,671)
Acquisition, integration and
restructuring - - - - 12,258 12,258
Expansion and pre-opening
expenses 603 - - - - 603
Share-based compensation - - - - 4,483 4,483
Rebranding - - - - 913 913
Change in value of naming
rights liabilities - - - - 27,406 27,406
Credit Agreement amendment
expenses(1) - - - - 714 714
Gain from insurance recoveries,
net of losses(2) - - (10,676) - - (10,676)
Bet.Works and Sinclair(3) - - - - 1,355 1,355
Sports and iGaming licensing(4) - - - - 386 386
Other(5) - - - 29 150 179
Allocation of corporate costs 2,487 2,356 3,168 1,283 (9,294) -
Adjusted EBITDA $ 23,976 $ 2,122 $ 26,384 $ 9,155 $ (9,162) $ 52,475 __________________________________
(1) Credit Agreement amendment expenses include costs associated with amendments made to the Company's Credit Agreement. (2) Represents insurance recovery proceeds received offset by losses attributable to damage at Hard Rock Biloxi from Hurricane Zeta. (3) Expenses incurred to establish the partnership with Sinclair and acquisition costs attributable to the Bet.Works acquisition. (4) Represents costs incurred to apply for and obtain sports and iGaming licenses in various jurisdictions. (5) Other includes the following items for the period (i) costs incurred in connection with the implementation of a new human resources information system, (ii) expenses incurred associated with theRhode Island State Police investigation into a former tenant in theLincoln property and a former employee of the Company, (iii) non-routine legal expenses incurred in connection with certain litigation matters (net of insurance reimbursements), and (iv) expenses incurred associated with the campaign attempting to create an open bid process for the Rhode Island Lottery Contract. 46 --------------------------------------------------------------------------------
Three Months Ended
Rhode Island Mid-Atlantic Southeast West Other Total
Revenue $ 56,279 $ 21,086 $ 25,482 $ 4,463 $ 1,838 $ 109,148
Net income (loss) $ 8,083 $ 205
(36) 41 (8) - 11,376 11,373
Provision for income taxes 2,958 78 378 (2,976) (6,102) (5,664)
Depreciation and amortization 4,782 1,454 2,263 415 65 8,979
Acquisition, integration and
restructuring - 20 - - 1,766 1,786
Goodwill and asset impairment - - - 8,708 - 8,708
Share-based compensation - - - - 5,542 5,542
Professional and advisory fees
associated with capital return
program - - - - (16) (16)
Credit agreement amendment
expenses(1) - - - - 239 239
Gain from insurance recoveries,
net of losses(2) - - - - (883) (883)
Other(3) - - - - 875 875
Allocation of corporate costs 2,754 1,032
1,247 218 (5,251) -
Adjusted EBITDA $ 18,541 $ 2,830 $ 5,288 $ 369 $ (4,967) $ 22,061 __________________________________
(1) Credit Agreement amendment expenses include costs associated with amendments made to the Company's Credit Agreement. (2) Gain related to insurance recovery proceeds received for a damaged roof at the Company'sArapahoe Park racetrack. (3) Other includes the following non-recurring items for the period (i) expenses incurred associated with theRhode Island State Police investigation into a tenant in theLincoln property and a former employee of the Company, (ii) expenses incurred associated with the campaign attempting to create an open bid process for the Rhode Island Lottery Contract, and (iii) non-routine legal expenses incurred in connection with certain litigation matters (net of insurance reimbursements), (iv) costs incurred in connection with the implementation of a new human resources information system
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.
Recent Accounting Pronouncements
Refer to Note 2. "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.
47
--------------------------------------------------------------------------------
An existing credit facility provides for up to $325 million of revolving credit
borrowings, the undrawn balance of which was $250 million at March 31, 2021 . Our
weighted average cost of debt was 6.24% per annum for the 12 months ended March
31, 2021 . Based on existing debt market conditions, we expect to be able to
reduce the all-in cost of our debt through the refinancings we contemplate but
there necessarily can be no assurance of this.
As of March 31, 2021 , we had agreements to complete acquisitions with a total
cash outlay, net of proceeds from expected sale lease back transactions of
acquisitions, totaling $197.5 million . We expect that our current liquidity,
cash flows from operations and borrowings under our credit facility will be
sufficient to fund these commitments. Our investment and acquisition capacity
was $331.7 million under our revolving credit facility as of March 31, 2021 .
On April 13, 2021 , we announced that we had reached an agreement to acquire
Gamesys for a combination of cash and shares of our common stock Under the terms
of the agreement, Gamesys shareholders will have the option to receive, for each
share of Gamesys, 1,850 pence in cash or shares of our common stock (at an
exchange ratio of 0.343 for each Gamesys share) or a combination of both. The
transaction is conditioned on, among other things, the approval of our and
Gamesys' shareholders and regulatory approval. Certain of Gamesys' current
shareholders holding 25.6% of Gamesys' shares have agreed to receive shares of
our common stock in the transaction. If only these committed Gamesys holders
elect to receive shares of our common stock, the maximum cash consideration
payable to Gamesys shareholders would amount to approximately £1.6 billion. We
arranged a $2.1 billion bridge loan facility as required by U.K. law to cover
the maximum amount of cash payable in the transaction. We expect to refinance
the bridge loan, as well as our and Gamesys' existing debt, later this year
depending on market conditions.
On April 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, were £485 million or
$671 million . We expect to use these proceeds for the acquisition of Gamesys
and, as such, we deposited the net proceeds into an escrow account and reduced
the Gamesys bridge loan commitment by the same amount. These funds in escrow
will be classified as restricted cash until we receive regulatory approvals.
We entered into foreign exchange contracts to hedge the risk of appreciation of
the Gamesys' GBP-denominated purchase price and the GBP- and Euro-denominated
debt to be paid off at closing.
In addition to the capital required to complete the proposed acquisition of
Gamesys, we expect that our primary capital requirements going forward will
relate to the operation, maintenance and improvement of our properties we
acquired and debt service, rent and acquisition payments. 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 the Casino KC property we acquired in 2020 and we plan
to invest $90 million in our Atlantic City property we acquired in 2020 over
five-years. In addition, we signed an agreement to jointly design and build a
new casino in Centre 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 . We may also commence our
expansion and other capital improvements at our Twin River Casino Hotel location
related to our proposed partnership with IGT. We expect to use cash on hand and
cash generated from operations to meet such obligations. For the three months
ended March 31, 2021 , capital expenditures were $15.3 million , compared to $3.0
million in the same period last year.
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. However, the COVID-19
pandemic has had, and is expected to continue to have, an adverse effect and
caused, and may continue to cause, disruption in the financial markets. While we
have undertaken efforts to mitigate the impacts of COVID-19 on our business and
maintain liquidity, the extent of the ongoing and future effects of the COVID-19
pandemic on our business, results of operations and financial condition is
uncertain and may adversely impact our liquidity in the future. In addition, our
ability to access additional capital may also be adversely affected by
restrictions on incurring additional indebtedness.
48--------------------------------------------------------------------------------
© Edgar Online, source
