Bally's Corporation

Good day and thank you for standing by. Welcome to the Bollies Corporation fourth quarter 2021 year-end 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 period. 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 call is being recorded. If you should require further assistance, please press star zero. I'd now like to turn the call over to Bobby Lalonde, Senior Vice President of Finance and Investor Relations at Bollies. Please go ahead, sir.

Bobby Lalonde 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. With me on today's call are Lee Fenton, Chief Executive Officer, George Papineer, 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 filings. Actual results may differ materially from the results discussed in these forward-looking statements. In addition, during today's call, management will refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures are included in the schedules contained in our earnings release and presentation. We do not provide 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 relations site and will be available for replay shortly after the completion of this call. Now, let me hand it over to Lee.

Thank you, Bobby, and hello, everyone. With our first full quarter together as an enlarged balance, I'm extremely excited about the potential across our business for 2022 and beyond. We closed Gainsys, the largest of our acquisitions to date, on October 1 of last year, and we've made significant progress on integration to this point. Let me give you just a few highlights. We prepared and got approved a consolidated group budget based on a clear set of strategic goals for 2022. In the next week, we will unveil our purpose and values to our global employee base, which will be at the heart of how we grow our business over the coming years. We have started to see the first fruits of our omnichannel vision with the launch of Bally iCasino in New Jersey. Our data project, which will be a key enabler to allow us to further optimize our business performance, is well underway. We are on track with our rollout of Ballybet 2.0. We continue to build top-of-funnel awareness, grow our customer data sets, and see increasing engagement on our free-to-play products. We have rationalized the Gamesys public co-spend to the tune of approximately $5 million. We launched the Bally Foundation in the UK to improve global employee buy-in and global awareness. and we will launch the same in the US in the next few months. And as we continue to drill down into the business, we are finding best practices among the teams, which will drive efficiencies for us in the longer term. Bringing together a wide array of assets with geographically dispersed teams and a number of business lines is not without complexity. So I'd like to give my heartfelt thanks to all of the Bally's team for the passion with which they have approached all of the integration work streams. As we've stated before, we are a unique combination with equal revenues coming from US retail casinos and the global digital business. We believe in customer centricity driven by great service, great data, and great analytics. We do not need to be first to market with an inferior product. Customers will always have choices And your first impression is more important than timing of launch. We will launch when the product is right, and we're willing to miss short-term gains to build long-term trust and value with our customers. With the continued irrational spending on sports betting, we have concentrated our North American Interactive focus on building sports betting products that is U.S.-centric and easy to use for the mass market. we will begin to market our 2.0 product in Arizona and New York in the first half of 2021. We've also accelerated our efforts to go live in Ontario with regulated iGaming, and we expect to launch there in the summer. And we'll add additional state launches through the second half of the year. Ballyi Casino launched in New Jersey in December, and I'm very pleased with the early results. As you know, one of the core plans for the rationale in bringing together Bally's and GameSys was to enable a lower cost of acquisition into digital products. We've seen very positive early momentum through our cross-sell campaign from the AC database into iCasino. The sign-ups above our expectations across the board, but actually delivering double-digit database conversion in the higher value segments. The cross-sell campaign has enabled our blended CPA to come in under $200 and has brought in customers with predicted LTVs circa 2x compared to what we've seen on our Virgin iCasino brand in the same state. We plan to increase our cross-sell campaign further in Q1 2022. Naturally, we'll also evolve this proposition as we go forward, and that was illustrated with the addition of live casino to the product on Monday of this week. We continue to focus on a differentiated omni-channel strategy where we drive awareness of the Bally's brand using free-to-pay products to optimize customer acquisition, providing cost structural advantages for our interactive business. a great example of this is the 100 million march madness bracket challenge that we will launch on the 7th of march leveraging our properties our extensive partnership with sinclair and our free-to-play expertise to deliver an extremely cost-effective marketing campaign as we introduced in the third quarter we're going to report our business with three primary segments casinos and resorts international interactive and North America Interactive. So turning to casinos and resorts, we have a large portfolio of regional gaming assets that generate significant and sustainable cash flow. 2021 was a record revenue EBITDA and free cash flow year. For 2021, pro forma for acquisitions completed in the year, excluding Atlantic City, Revenues were $983 million and EBITDA was $395 million, showing a 40% EBITDA margin. Fourth quarter gave us EBITDA of $83 million on revenues of $278 million. Excluding AC, EBITDA of $88 million on revenues of $247, showing a 36% EBITDA margin. In the seasonally lower fourth quarter, we were negatively impacted by COVID and the previously mentioned smoking ban in Shreveport. In addition, in response to market conditions, we brought back some amenities in November, December that caused a little offside with COVID and the impact of poor weather. We pulled back those amenities in January and the past few weeks have seen the return of strong margins. 2021 pro forma, as if all acquisitions closed at the beginning of the year, we would have had revenue of approximately 1.15 billion. Going into 2022, we expect revenues to be flat or slightly up from that level. EBITDA in the range of 385 to 395 million. We expect that Atlantic City will contribute 150 million of revenues and no EBITDA. Excluding AC, we expect EBITDA margins to be in the 38% to 39% range. This includes a January that has 5 million of headwinds due to COVID and particularly poor weather. Volumes have bounced back in line with expectations in February. Inflationary pressures, particularly on the wage side, are the main headwinds into 2022. But we expect the market to be rational and continue to expect that we will maintain most of the margin gains over 2019. FTE count at the casinos at the end of Q4 21 was down 26% over Q4 19, and we expected to hold at that level through 22%. We have 180 million of capital expenditures in the properties in 22, with the key highlights being Atlantic City, where we'll add 750 new hotel rooms and several new amenities that will be in service by Memorial Day. At Lincoln, where we'll build out 50,000 square feet and have a significantly enhanced Asian offering. In Kansas City, the investment will extend into 2023, but provide significant upside to an already successful story with the addition of 40,000 square feet of land-based facility housing non-gaming amenities. In addition, we will finalise the full Ballet's rebranding of our properties by the second quarter. Moving to International Interactive, which is primarily operations in the UK and Asia. 2020 was the record for revenue, EBITDA and free cash flow. In terms of revenue for the full year, on a constant currency basis, UK was plus 10% year-on-year, and Asia was plus 18%. Tough comps in Q4 meant that on a constant currency basis, UK was down 5%, and Asia up 8%. Handling the UK was only up 1%, but a more than 4% move down in house edge led to a result slightly below expectations. For January, our house edge came back to normal levels. Q4 average monthly active users were down 3% year-on-year. Our deposits ticked up 4%. 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 with the gambling app review. We have always been and will continue to be the leader of best practices in the market, illustrated by our recent Gamcare accreditation for their safer gambling standard at level three, which is the highest level any company can achieve. In Asia in the fourth quarter, revenues were plus 8%, while total handle was plus 14%, and deposits were up by 15%. Our new Ugado brand continues to take share And during Q4, we moved to 24-7 customer care for the market. Slots is now our largest product segment. And even when you combine live and RNG casino, and we believe this demonstrates wider adoption of online gaming in the market. We're a first mover out there and can say that the data is pointing us to tremendous opportunities in both short and long term. In 2021, 34% of NGR was from customers acquired over two years ago, and this is up from 22% in 2019 and 2020. Having a strong and growing long-term customer base allows us to be more competitive and continue to invest while maintaining strong growth and cash flow. In the UK for 2022, we expect loads of mid-single-digit growth. For H1, we have some tough COVID comps, but we expect the year-on-year decline we saw in Q4 to be the low point. We expect Asia to deliver double-digit growth. Spain, the rest of Europe, and the rest of the world will have revenues of $50 to $60 million compared to $68 million in 2021 due to the closure of non-core markets. We expect a total revenue of approximately $1.15 billion, assuming a GBPUSD rate of 1.35. Segment EBITDA margins should stay at our long-term guidance of 28% to 29%. We will spend approximately $30 million on capital expenditures, consistent with a historic spend on platform development.