Bally's Corporation

Good day and thank you for standing by. Welcome to the Bally's Corporation Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. In order to ask a question during the session, please press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded. If you require further assistance, please press star nine zero. I'd now like to turn the call over to Bobby Labian, Senior Vice President Finance and Investor Relations for Bally's. Please go ahead, sir.

Good morning, everyone, and thank you for joining us on today's call. The earnings release and presentation that accompany this call are available in the investor relations section of our website at www.bally's.com. With me on today's call are Lee Fenton, Chief Executive Officer, George Papinier, President Retail, Robeson Reeves, President Interactive, and Steve Kapp, Chief Financial Officer. Before we begin, we'd like to remind everyone that comments made by management today will contain forward-looking statements. These forward-looking statements include plans, expectations, estimates, and projections that involve significant risks and uncertainties. These risks are discussed in the company's earnings release and SEC filing. Actual results may differ materially from the results discussed in these forward-looking statements. In addition, during today's call, management will refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures are included in the schedules contained in our earnings release. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges within certain expenses. Today's call is also being broadcast live on our investor site and will be available for replay shortly after the completion of this call. Now I'll hand it over to Lee.

Thanks, Bobby. Good morning, everyone, and thank you for joining us. I join you today from our Shreveport Casino in the great state of Louisiana and could not be happier to be here. Welcome to all our investors and other stakeholders. I'm excited to start our journey together to build an outstanding global gaming entertainment company. Bally's closed the acquisition of Gamesys on October 1 and I've spent time with some of you discussing the strategic priorities and direction of our business. Today's call will give you some further insight into our evolving roadmap and expectations going forward. The past two years have seen large steps forward in the strategic direction of Bally's. We want to simplify the story to focus on our key competitive modes. Namely, we have strong cash flow, fully owned technology, high awareness of the Bally's brand and market presence that gives us access to millions of customers. Just one year ago, we were named Twin River and have a $750 million market cap. Since then, we've changed our name to Bally's, closed on multiple retail casinos, struck a strategic deal with Sinclair to rename all its regional sports networks to Bally Sports, acquired a sports betting engine, and done a transformative deal with Gamesys to give us access to iGaming and deep experience in digital, both in product and in management talent. Our market cap is now more than $3 billion, and yet we think we're just beginning. Starting with the upcoming fourth quarter and into 2022, we will operate and report the business through three segments. Firstly, retail, comprising our current 14 casinos in 10 states. We will be providing more information early next year on our new build in Pennsylvania, plans for our acquisition of Tropicana Las Vegas, and our proposed build in Chicago. Our second segment will be International Interactive. This includes our market-leading iGaming operations in the UK and Asia, as well as smaller markets in Europe and the rest of the world. And our third segment will be North America Interactive. This segment will combine the collection of digital assets acquired over the past two years, including Bet.Works, as well as the Gamesys technology, provide a unique data-driven product in OSB and iCasino into the high-growth North American market that includes the US and Canada. This segment also includes market access into five states in addition to our existing retail casino footprint. The strategic rationale to bring Bally's and Gamesys together was to leverage Gamesys' proven technology and know-how to turbocharge Bally's omnichannel gambling platform in North America. whilst continuing to grow interactive revenues internationally. The retail casinos are a scaled casino footprint with meaningful cash flow generation and market access, brand awareness and player databases. International Interactive will continue to grow while providing the business scalability on technology resources as well as strong earnings flow-through. North America Interactive is in the early stages of what I believe will be tremendous growth And with the free cash flow generated by retail casinos and international interactive, we will have ample cash at hand to invest into that opportunity. There are lots of moving parts, so let me start to try and simplify the story. Retail casinos, excluding Atlantic City, run rates at approximately $450 million of adjusted EBITDA, which excludes rent. Rent expense currently stands at $46 million per year. International Interactive, annualising for this quarter, is doing approximately $330 million of adjusted EBITDA. Corporate expense is $40 million and we'll see some upward pressure from market factors including insurance and growth hiring. Our new debt stack is 3.445 billion, with cash interest expense of 165 million, which is an average cost of capital sub 5%. Maintenance capex for the new entity is 80 million. When you add all of that up, before investments in North America Interactive, growth capex of retail casinos, or shared buybacks, we have north of 400 million of pre-tax free cash flow to invest to drive shareholder value. Assuming a 25% tax rate and 68 million shares, which includes common shares outstanding and full dilution of warrants, options, and other contingent consideration, we're around $5 per share of free cash flow. We will continue to evaluate investments that drive shareholder value. At Gamesys, we've built a strong track record of creating shareholder value, and that's exactly what we intend to do here. We are committed to taking our $5 per share of free cash flow and investing in growth of the properties, buying back stock, and most importantly, investing in North America Interactive. We ran GameSys with strict CAC and LTV metrics. And although it's early days, our initial analysis indicates we'll be in a competitive position investing near 20% of our pre-tax free cash flow into the North America Interactive segment in the near term. Be certain that spending will be success-based and grounded in strict metrics. If the ROI is there, we will spend more. Looking to results for the third quarter, I will discuss the results of Bally's Corp and Gamesys separately. Bally's Corporation had a record revenue with 315 million of sales and 78 million of adjusted EBITDA. Retail casinos have 302 million of revenue and 106 million of EBITDA, excluding rent. The quarter was negatively impacted by approximately 6 million EBITDA because of natural disasters that included two hurricanes and wildfires in Nevada. Excluding Atlantic City, which I will touch on later, revenues of 260 million were up 3% to the comparable period in 2019. Adjusted EBITDA, excluding rent, Adding back the 6 million natural disaster impact was 109 million compared to 79 million in 2019. This equates to a 42% property EBITDA margin and 31% in 2019. In a normalised post-COVID environment, we expect EBITDA margins to normalise at mid to high 30s. A few notes on the properties in the quarter. Demand at Lincoln for cable games has justified opening the hotel, which we did on October 1. We will continue to take a conservative approach to bringing back amenities. Atlantic City reported a positive 3 million of EBITDA, better than the previous quarters, but still below expectations. We expect Atlantic City to have full-year losses of approximately 12 million. I've reviewed the CAPEX program and believe in the long-term potential, but it will be 2023 before we have a full year of positive EBITDA from the property. The journey we're on with Bally's AC is very comparable to our investment in Tiverton. It took us over 12 months to get it right, but ultimately our 100 million plus investment at Tiverton has been a runaway success. Additionally, the AC property will be heavily in focus in 2022 to support our iCasino launch that I will discuss shortly. Our programme to rebrand the retail estate accelerated in the quarter. We expect all properties to have been rebranded by the end of the year. I'm sitting at Banner Shreveport that was Eldorado when I walked in the door just a few days ago. This banner changing investment will be a tailwind for the entire group into 2022. Net-net, the retail casinos delivered a record quarter, with adjusted EBITDA, excluding Atlantic City, adjusting 6 million for natural disaster impacts, up 39% over 2019. July was an exceptional performing month, with a step down in August and early September, primarily from natural disasters, that has improved into October. We expect to maintain recent margin improvements, offset moderately, by increased labor rates in 2022. Moving to North America Interactive, in the quarter we had 11.4 million of revenue and 5.5 million of EBITDA losses. This is in line with our expectations as we continue to invest in brand awareness, customer engagement through free-to-play, as well as the development and integration of the Bet.Works and GameSys technology stacks. In the quarter, we closed on acquisitions of the Association of Volleyball Professionals and Telescope that support our awareness, content, and consumer engagement efforts. Post the quarter closed, we acquired Degree 53, having further expertise to our sports front-end development. Right now, Bally Interactive has four priorities. Firstly, to drive awareness of the Bally brand at a local level using proprietary assets and partnerships, building structural cost advantages relative to the competition. Secondly, to launch iCasino and OSD products that are loved by our customers. Thirdly, for interactive teams to work hand in glove with their retail colleagues to leverage our footprint and deliver an omnichannel experience that is both relevant and value-adding to the customer. And lastly, to develop content and consumer programming that creates unique opportunities for customer engagement with the Bally brand on a daily basis. In the quarter, we made good progress on our app launches. We will launch the Ballyi Casino in New Jersey before the end of the year. We are currently live with Ballybet 1.0 app in Colorado and Iowa, and in the coming months, we will launch in Indiana and Virginia in beta phase. Our significant focus, though, is on the launch of BallyBet 2.0 in the first half of 2022. This new app will see us play to our strengths as we integrate the Bet.Works B2B sports betting engine and the games to B2C technology, data-driven experiences, and scalable player lifecycle management tools. The BallyBet 2.0 app will launch first in Arizona, focused on the core sports experience, But once deployed, that will help us scale quicker across multiple states and we will update on that progress over the coming months. Brand awareness is strong and improving through the visibility given across Bally Sports, the free-to-play offering through our sport caller business and our daily fantasy business, Monkey Knife Fight, that is now available in 38 states. Moving on to the performance of the Gamesys business in the quarter. As a reminder, we closed the acquisition of Gamesys on October 1. Revenue and EBITDA was a record performance on a constant currency basis. Revenue was $279 million and EBITDA was $84 million. Revenue increased 6% year-on-year, while EBITDA increased 7%. UK revenues increased 9%. and Asia increased 10%, while Europe was down 25% as we are exiting non-core markets in Netherlands and Germany due to regulatory changes that accounted for 200 basis points of headwinds in the quarter. In the UK, active users were up 3% on the year prior. Our transition of the Hart Bingo proposition to Double Bubble Bingo in September has been well received by the market, with us retaining in excess of 95% of revenues and growing. And it gives us an improved trademark license rate and a 10-year term for the brand. Average stake size in the UK in the quarter was 85 pence compared to 86% the year prior. Our average stake size in slots for the quarter was 75 pence versus 76 pence the year prior. We continue to believe that the average bet size, customer profile, responsible gaming standards, and a lack of dependence on VIP business puts us in a favorable position as the UK progresses the gambling app review. We have always been and will continue to be the leader of best practices in the market. In Asia, active users were up 47% year on year. Our strong growth comes from localised games in the market and leading customer acquisition practices. We continue to enhance our offering in Asia, most notably with daily free games that increase reach and frequency, with more exclusive content to enhance retention and extending our customer service hours to 24-7. Our approach to customer service is unique in the market. Distribution costs, which is variable costs including marketing, licensing, gaming tax and processing fees, was 53.7% of net revenue versus 53.8% the year prior. Administration costs, which are fixed costs including compensation, professional fees and G&A, was 16.2% of net revenue, the same as in the same quarter in the prior year. The games this business has a very predictable cost structure. and we'll look to maintain that going forward. Adjusted EBITDA of 84 million is a record for the company and a good benchmark for profitability through into the future. Prior to handing it over to Steve, I just wanted to leave you with a few more points. In the UK, GameSys has grown from a 9.6% market share in 2016 to a 13.3% market share in 2021. This was the best market share growth of any of our peers. This growth came from being a data-first company, using analytics to drive best-in-class LTV determinations, which leads to better decision-making on cap and lifecycle management to lower churn. We will deploy all these tools into the North America interactive environment. Another key factor in growth was customer centricity. We do not need to be first to market with an inferior product. Customers will always have choices, and we will take a customer-centric view of our products. We will launch when the product is right, and we are willing to see short-term gains to build long-term trust and value. Our analytics and lifecycle management will be important to North America Interactive, but will also apply to retail casinos and we are starting to implement new technologies into the casino for better marketing analytics and driving a true omni-channel experience. The Bally brand is very recognisable and it's critical for us to continue to build both the awareness and the relevance of the brand. My time at Gametis saw the company become a leader in the UK in sustainability, responsible gaming and being at the forefront of ESG in the industry. In my first month at Bally's, we've hired group heads of sustainability and diversity and inclusion. These issues will be at the forefront of our minds, particularly as more focus is put on the North American gaming industry with the growth of online gaming. Finally, I get that the Bally's story has been a little complex up to now due to the incredibly fast growth of the group through multiple acquisitions. It is our job to simplify the story for investors, give clarity on the numbers and the roadmap, and execute very tangible progress through 2022 to create long-term value. With that, I will pass to Steve, who will provide some incremental color on the quarter.