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spk01: Good day, and thank you for standing by. Welcome to the Bally's Corporation second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be 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 any further assistance, please press star then zero. I'd now like to turn the call over to Bobby Levan, Chief Financial Officer for Bally's. Please go ahead, sir.
spk02: 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 Papenier, President Retail, Robeson Reeves, President Interactive, Amit Patel, Senior Vice President and Regional General Manager, and Joanne McHale, Senior Vice President of Design and Development. Before we begin, we would 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. 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 site and will be available for replay shortly after the completion of this call. I'm handing it over to Lee.
spk09: Thank you, Bobby, and hello, everyone. We now have three quarters under our belt since the combination of Bally's and Gamesys, and we've made considerable progress over the past 10 months. We've rolled out the Bally's brand across our property portfolio and the Sinclair RSNs. We bought Bally's iCasino to life in New Jersey, we have developed our foundational OSB product and begun its deployment. We've won the bid to develop the first downtown casino in Chicago, and we brought together the company as one valise with a single purpose and a set of DNA that we will embed further as we progress. While we are now a more unified company, we recognize we're going into some global turbulence. And I believe the significant cash flow generation of our casinos and resorts and international interactive segments continue to be one of our critical success factors. Since we reported the second quarter, we've had a number of puts and takes on our business. In casinos and resorts, Lincoln continued to outperform expectations, post-removal of mass mandate and the return of smoking. However, the turnaround of Atlantic City will take longer than we'd hoped for. with AC having negative 3 million of EBITDA versus our expectations of a positive 4. AC is not where we want it to be. Now, most of the renovation program is complete. We've moved to restructure our cost base there for the go forward. And from August, we've taken out costs which should generate 10 million of annualized savings at the property. We are heartened by improvements on handle and drop, and getting some recent bad luck behind us on hold, the earnings trend there will get better. The rest of the portfolio performance was in line with expectations. Our EBITDA margin, XAC, is slightly ahead of expectations at 39%. In International Interactive, we found a bottom in the UK in June, plus 2% year over year on a constant currency basis. despite us lowering marketing spend by around 30% and reducing bonusing to deliver margin enhancement. July performance was more positive still and saw our highest monthly actives for 2022 so far. The comparisons get easier through the third and into the fourth quarter, and we're making good progress with more dynamic jackpot strategies and enhanced customer journeys powered by machine learning. As we all know, the UK white paper was delayed once more, and we await a new government in September, but we expect that to arrive with the consultation period beginning soon thereafter. A mixture of currency weakness that impacted the customer experience and lower than expected FTDs led to a flat quarter in Asia. FTDs were down as we moved a large affiliate promotion back into Q3, so expect some improvement then. Also in the second half, we see growth from our recently launched Sportsbook with the benefit of the World Cup at the end of the year and increased uptake from our Refer a Friend program that has increasing traction in the region. We will continue to harvest Spain and our wind down of the rest of Europe. North America Interactive is still in ramp up mode despite having an early version of the product and without the full feature set we have in the UK New Jersey had almost 3 million of NGR in our B2C iCasino in June, with contribution margin in the mid-30s. We expect New Jersey B2C to continue to grow and be profitable for the rest of the year. We are targeting 6% to 8% market share in 2023 after the implementation of omnichannel rewards by the end of this year, along with improvements in payment processing and marketing tools. With a CPA sub $250 for four marketing tech stack improvements, New Jersey is the model we will apply to the rest of our North American rollout. Each state will be different, and our focus is on creating a blueprint for each state of a similar type before we invest in that rollout. iCasino states are our priority. and we will focus our resources in live markets, including Pennsylvania and Ontario, as well as those states we believe that will regulate iGaming in the next two years. Our foundational sports product is now live in Arizona and New York and will be greatly enhanced by the integration of much higher volume of sports and events over the coming months. Our player funnel continues to evolve, leveraging our unique asset collection. Our model is to focus on minimizing and optimizing customer acquisition costs and building a loyalty loop for continuous engagement, lowering churn, and driving the customer experience. Over the next year, we'll continue to integrate with our casino database, providing a unified wallet and omnichannel rewards, and develop owned proprietary technologies that provide customers unique, engaging experiences everywhere. Our partnership with Sinclair today provides strong awareness for the Bally's brand, but to this point we've not taken full advantage of the Sinclair relationship more broadly, despite adding around 100,000 players to our free-to-play offering promoted from Bally Sports. We are working together with Sinclair to design and build a watch and bet product that will further evolve our strategy and keep our costs of acquisition down. Our focus is on the continued development of our product and the market blueprints rather than an aggressive rollout strategy. Now, I wanted us to take a few minutes to cover the exciting developments in Chicago. Technology isn't going to be everything to online gaming. We also need flagship properties that establish our brand presence and provide a true omnichannel experience. So let me turn it over to George to introduce the Ballet Chicago team and discuss the road ahead for that development.
spk07: George? Well, thank you, Lee, and thank you all for joining us on this call this morning. So in May, we were selected as the winner to build a unique casino property in downtown Chicago. Demand for gaming in Chicago is an excessive supply, with many players leaving the city and the state of Illinois to game. Despite being the third largest city in the U.S. with 55 million visitors to the city and 85 million passengers through the airport annually, the city of Chicago has little direct benefit from gaming. That dynamic will now change with our $1.7 billion project. Valley Chicago will have community ownership, locally focused jobs, and investments that will improve the infrastructure of the city for generations to come. We will open a temporary facility in June 2023 at the Medina Temple in the heart of Chicago. The site and location of that project is unique and will help develop the customer list in support of Bally's Interactive and ultimately the opening of the permanent facility. We expect to invest $70 million to open a temporary facility and the property is projected to deliver at least $50 million of EBITDA in the first year of opening, not counting any benefits to Bally's Interactive. The permanent facility is scheduled to open in June 2026. We expect to have 3,400 slot positions and 173 table games, generating $400 win per unit and $4,600 win per unit, respectively. These forecasts are just 50% of the unit performance of our nearest competitor. We expect at least $250 million of EBITDA from the property in the first year, and that is being factored in the upsides from synergies between retail and digital. After acquiring the Bally's brand in 2020, the Board of Bally's was very focused on building a team that would support our higher ambitions for flagship properties that would grow our brand and integrate a rapidly developing North American interactive business. Over the past year, we hired two seasoned executives to lead those efforts. With me today are Joyant McCall, who has almost 30 years of casino development and design experience and was most recently with MGM for 20 years leading their design and development office. Also with me is Amit Patel, who joins us from Penn National with more than 20 years of gaming experience and will be the executive overseeing Valley Chicago temporary and permanent facilities. We continue to hire up for Valley Chicago. Over the coming months, I'll be happy to introduce you to join and meet to discuss the project, and we will continue to keep the market abreast of developments on the property. Now I'm going to turn it back to Bobby.
spk02: Thanks, George. Moving to the segment details. Casinos and resorts reported $99 million of EBITDA in the quarter. This includes minus $3 million of EBITDA for Atlantic City. Excluding Atlantic City, EBITDA margins were 39.2% in line with our targets of high 30s. EBITDA for the quarter excludes $3 million of rent to GLPI associated with Tropicana Las Vegas. That rent will become part of reported triple net rent when we close on Tropicana at the end of September. International Interactive had approximately 83 million of EBITDA at a staggering 35.2% margin. The UK was minus 6% year-over-year on a constant currency basis, and Asia was flat. As Lee discussed, marketing was off in the UK by 30% relative to budget as we focused on profitability and highly efficient spend. North America Interactive had 17 million of negative EBITDA. New Jersey had a little bit more than 6 million of revenues slightly offset by negative revenue numbers in 1.0 states. We have removed free play to lower the drag those states have on the overall business. We have updated our 2022 financial forecast to reflect adverse FX headwinds, the reset in Atlantic City, and actual results for the first half of the year. At current FX rates, we expect revenues to be 2.2 to 2.3 billion, and adjusted EBITDA to be 535 to 550 million, including 60 million of North America Interactive EBITDA losses. We continue to focus on profitability and cutting costs, but some of the cost cuts will only occur with five months left in the year. We are lowering capital expenditures for the rest of the year from 270 million to 250 million to reflect a more cautious approach into the rest of the year. Rent expense will now be $52 million for the year, with the Tropicana Las Vegas scheduled to close on September 30th. We expect the Tropicana to generate approximately $6 million of EBITDA in the fourth quarter that offsets incremental rent expense. On July 27th, we closed our previously announced tender, repurchasing 4.7 million shares for a total of $103 million. Pro forma for the tender, common shares outstanding are $48 million, and we have incremental warrants options, and other dilution of 13 million shares. 61 million is the shares outstanding number you should use. We ended the quarter with $3.4 billion of debt and $176 million of cash and no amounts drawn on our revolver. We have ample liquidity to fund all of our announced projects and continue to invest in the North America interactive business. Our long-term commitment is to be subbed five times debt to EBITDA, which we expect to hit in mid-2024. At the end of June, we announced real estate sales to GLPI. For now, we anticipate that sale to bring in $635 million of cash proceeds on a tax-free basis. Incremental rent on the $635 million is $48.5 million. We continue to evaluate potential consents that would allow for a sale of Lincoln as well. We expect either transaction to close at the end of the year, and our updated guidance reflects a 12-31-2022 closing date. In our investor relations website, presentation on our website, we have updated our three-year cash forecast. Free cash flow, excluding the new rents from the sale of Biloxi Tiverton, which will be used to fund future growth, is $280 million in 2023. With our share count of $61 million, we get to near $5 of cash earnings in 2023 and $6 in 2024, while maintaining significant cash on our balance sheet. We will continue to invest this free cash flow in cash on balance sheet to drive shareholder value. With that, let's open up the call to Q&A.
spk01: At this time, if you'd like to ask a question, please press the star and 1 on your touch-tone phone. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. We'll take our first question from Jeff Sancho from Stifle.
spk13: Hey, good morning, everyone. Thanks for taking our questions. Starting out, Bobby, you've talked in the past and given us some milestones on how to contemplate FX. I was hoping maybe we could get an update there. I seem to recall an 8% yielding a certain impact, pretty de minimis to EBITDA, but just any way to benchmark how a declining pound and euro translates to EBITDA impact just to make sure we stay anchored for further FX volatility from here.
spk02: Yeah, so, you know, FX is off 10%, and that's a $20 million hit when you factor in Asian currencies as well. So the Asian business is denominated in USD, but we've seen significant indirect volatility from the consumer. So, you know, with currency where it is, including Asian currencies, you should look at it as about a $20 million hit.
spk13: Okay, great. That's helpful. Thank you. And then on the brick and mortar business, you know, it sounds like excluding Atlantic City, things are going according to plan. Just curious, you know, at Q1, you talked about some softening lower end of the database in certain markets. You know, can we get an update there? Has that stayed relatively stable? Has it gotten worse, better? Just any thoughts around the consumer amidst the persistent inflation we're dealing with would be great.
spk09: Sure. I think the trends that we outlined in Q1, Jeff, have held really through Q2. So that's exactly where we are. So strengthening in the higher end of the database, some softness, but not huge in the lower income area and properties that we have there. But it really is as is for Q1. We were bracing ourselves for Q2, making sure we had a very tight eye on cost, and we will continue to do that through the second half of the year because we would anticipate some inflationary pressures, but we didn't see any increase from what we've already seen in Q1. Q2 has been as is.
spk13: Great. That's really helpful. And then if I might just squeeze in one more. Any thoughts on the planned project for Tropicana heading into deal close or stay tuned there?
spk09: So for Trot, we've said that we will continue to operate the property. We obviously, I think it's well advertised that we intend to develop at some point in the future, but we will run the property on an as-is basis at least for the next 12 months until we have identified the plan and the partnerships that we want going forward.
spk03: Great. Very helpful. Thank you both. Thank you.
spk01: Our next question comes from Barry Jonas from Truist Securities.
spk05: Great. Thanks for taking my questions. I actually had a few around the Chicago project. Maybe can you start about talking about next steps from here and any risks maybe that you see for getting the full project to completion, specifically touching on inflation, supply chain risks, and such? Thanks.
spk07: Sure. George, who do you want? George, hi Barry. I'm going to direct this question to Joann Vacal, who I introduced earlier in the call. He's actually overseeing the development and construction of the project. So I'm just going to pass it over to Joann.
spk10: Thank you, George. And good morning, Barry, and good morning, everyone. So we have, during the development phase of the project, as we were going through the RFE process, we've taken into consideration as many of the common risk factors while budgeting the project. We feel very good about the schedule on the project. We are continuing as planned. We are meeting all of the dates that we had planned for on our schedule with potentially finishing our drawings for submission for the temporary coming up in September and then leading on to the construction phase of the project. Same goes for the permanent facility. We are working in tandem. We are identifying all of the site factors that we need to look at at this point in stage and continuing to identify all of the long lead items that we need to work towards as well. And we've taken, you know, as far as the budgets are concerned, we've taken into consideration some of the inflationary and escalation factors that we might have to look at as we go forward as well. So we feel very good about where we are in the process, how we are tracking with the process. We've got really good relationships and we are tracking very well with agency approvals as well. And same thing goes with community outreach programs as well.
spk05: Great. And could you maybe talk about your level of confidence around the EBITDA numbers you're forecasting for both the temporary and permanent facilities?
spk07: This is George again, Barry. I'm going to pass this over to Amit Patel, who will actually be overseeing the operations for both the temporary and the permanent facility.
spk08: Thanks, George. Good morning, Barry. Good to hear from you. As far as the temporary goes, I just wanted to add a couple of comments on what Joanne mentioned earlier. When you look at our risk factors going into the temporary facilities, there's really two things that we're keeping a laser sharp focus on. One is the inflationary pressures and how are we making sure that our pricing models continue to allow us to deliver on the numbers that we've given out for our cost and completion of the project. And number two, we're keeping a very close eye on the supply chain as well. And some of the long lead items We've taken surveys of our manufacturers right now, the key manufacturers who supply the slot machines and the parts to us. We are actually going ahead and purchasing slot machines as we speak. We are ordering slot machines today. In the next 90 days, our thought process is we want to stay ahead of the supply chain and make sure that we rather have these slot machines in our warehouse than be able to worry about them in the second or the first half 2023. When it comes to the operating model, Barry, I think the numbers speak for themselves. We alluded earlier to the visitations that we have in the City of Chicago. Just remember, and I'll start with the temporary facility first, that we, out of all of the operations that are currently in Illinois and in and around Chicagoland, we will be the biggest beneficiary of the tourist market that is reviving at a very fast rate in the city of Chicago. We are going to get the highest participation of the unrated play in the city of Chicago based on our here location and where the fundamentals of the tourists are in the city. We've looked at and talked to several key hotel operators in downtown Chicago. Chris Jewett, our chief development officer, and myself have talked to these hotel operators And they are seeing a very healthy sign of hotel increased visitation coming back to the city as we speak in the last six months. When you look at those fundamentals, you do the math with what our nearest competitors do with rivers numbers. And right now, if you look at what we have in our host community agreement with the city, we have promised to the city that we will have 800 gaming positions at our temporary facility, which is the Medina Temple. For those of you who have not been to the site, an absolutely gorgeous, stunning building right in the heart of the district in Chicago. And it allows us to capitalize on the tourist market there. On top of that, when you look at the numbers that we have on wind per unit that we projected here, There's a significant upside that we have here. Just the number of positions that we've given to the city is 800 positions. And now we are easily going to exceed that expectation. And as a result, we should be able to deliver on the EBITDA and the revenue numbers that we're giving out for table games, win per unit, and slots as well.
spk03: Great. Okay, thank you. Really appreciate all that, caller. Thanks, Barry.
spk01: Our next question comes from Chad Binond from Micora.
spk12: Hi, good morning. Thanks for taking my question. First, I wanted to ask about International Interactive. Very impressive in terms of the margins and kind of holding in EBITDA there. So with marketing off 30%, as you mentioned, What have you seen with the player? How have they responded to the reduction of marketing? Can you talk a little bit about number of users or kind of the ARPDAU, just kind of what you're seeing on the back of that? Thanks.
spk09: Sure. Thanks, Chad. Really astounding results, really, in the fact that we took marketing down so heavily but only reduced our FTD count by 9%, having taken marketing down circa 30%. So real efficiency in the spend. We did it for a couple of reasons. One was there was some changing dynamics on the Google auction and people being forced to log into Google to be age verified, and that was causing some inflationary pressure which we decided that we didn't want to chase until that had settled down. And making sure, really, that we were preparing for any further inflationary pressure that we might see in the consumer base. If you remember when we reported Q1, we said we felt we were seeing some softening in the UK consumer. That trend has not continued. So we now have... a strengthening of the consumer base in the UK during Q2 and with what we've seen through July. We're very pleased with where we've got to in terms of those marketing efficiencies. There's also been some efficiencies on the bonusing side as well. So we'll continue with that strategy for now until we get absolute confidence in the strength of the consumer for the rest of the year.
spk12: Excellent. And then turning to the U.S., your six to eight percent market share goal with Bally's New Jersey by 2023. What's given you the confidence that you can get to that level? Just given that, you know, it's a pretty competitive market. You have some other competitors that are ramping. And then beyond that, how should we think about, you know, some goals and timelines for other markets like Pennsylvania and Ontario? Thank you.
spk09: Sure, thank you. Yeah, so listen, it is an aggressive target. We're going for it. We think that we can get there from all of the trends that we're seeing in New Jersey today. We're probably circa, what, just below 3% market share today. So we think we can double during 23 and actually take that market further. If you remember... When Game Sisters was working with Tropicana, I think we were like 6.5% share in the New Jersey market. And we are seeing excellent trends in terms of the way that we can cross-sell to the casino database. And we've made some real strides in terms of upgrading our product. The product in our New Jersey casino was still not on parity with UK. And so we're still migrating features that we have in the UK market over to New Jersey, as well as upgrading what we have on the Omnichannel side and really tying in the rewards program. So the trajectory up to now has been great. We've got a lot more product to bring and a lot more Omni to develop over the next 12 months. So that's really what's driving that in our confidence in the New Jersey market. In terms of what comes next, well, as I said, you know, what we're focused on is the product, developing the blueprints on a state-by-state basis. You know, the new technology that we put together between GameSys and Betworks to create our foundational OSB product, we're pleased with, but we need to do more, right? So we need to go further. We're doing a lot of content integrations over the next three months. that we'll see the volume of sports and events increase massively on that product. And there is feature development we still want to do. So rather than go and spend marketing dollars against the product that we don't think will cut through, we're going to keep those marketing dollars back until we've really developed the product to the stage that we want to get there. In terms of what comes next, as I mentioned, we'll be leaning into iGaming, right? So anywhere where we think iGaming is going to legislate over the next two years or where it already exists. We launched a web-only product in Ontario a couple of weeks ago. Actually, it's done quite well out the gate. We expect Ontario will be the first place where we deploy our combined app for sports and iGaming during the second half. And as well as that, we'll of course be looking at Pennsylvania where we're looking for a license around the property as well. And going into next year, I think our focus will be on the likes of an Indiana and an Illinois where we think we can make progress.
spk12: That's great. Appreciate it. Thanks for all the color. Thank you.
spk01: Our next question comes from Ricardo Chinchilda from Deutsche Bank.
spk11: Hey, guys. Thanks for taking the question. First, a housekeeping item. I was wondering if you could provide the EBITDA breakdown for debt holders, the one using for covenant analysis purposes?
spk02: We don't have that, but Rhode Island LTM EBITDA is $644 million.
spk11: Perfect. Moving into, you know, the forecast that you have for 23 and 24, could you please provide a little bit more color of, you know, what's implied for Atlantic City into next year and for Tropicana Las Vegas? Because I see that you have like 6 million per quarter, but we analyzed that it's like 24 and the rent, it's almost 23 million. So I was wondering, you know, how accretive that is going to be into earnings for next year. And, you know, when is the Pennsylvania, uh, uh, property opening, you know, according to your estimate.
spk02: Yeah. So on Tropicana, the way we're viewing the property as is today is the rent associated with it is 22 and a half million, and it will generate 20 to 25 million of EBITDA. So earnings neutral, um, You know, we do factor in next year our JV with IGT, which generates today about $9 million of EBITDA, goes from 23% to 40%. Atlantic City, you know, we do believe we will get to $10 million to $20 million in the next two years. Very seasonal property, so, you know, TBD on that. We have implemented $10 million of cost savings. and hold for the past six months has been underperforming. You know, we do view international interactive as flat into 23 as we sort of work through sort of some of the dynamics with the white paper. So your assumptions are not aggressive. We just have a lot of projects in the 10 to 20 million range that turn on. in the next year. And then Pennsylvania will be a great project, you know, into sometime in 2023.
spk11: Great. Last question for me, you know, could you please comment a little bit more on your strategy towards, you know, the sale leads by transaction of Lincoln? You know, it seems like based on the forecast that you, you know, that you have provided that, you know, you could do fine just with, you know, selling Biloxi rather than going for the sale-leaseback proceeds from Lincoln? You know, any commentary on, you know, what potentially could be the uses of the incremental money for that and, you know, sort of what are the advantages for or what are you guys thinking about, you know, the advantage for the company of that money and particularly with regards to your share repurchase strategy?
spk02: Yeah, so... The Lincoln-Tiverton transaction was a billion. The Biloxi-Tiverton transaction, 635 million. But on that billion transaction, the bid ask on how much pay down was too wide. And so effectively, the Lincoln transaction was liquidity neutral to actually slightly worse. And so it's better for the company to leave Lincoln behind you know, do Tiverton Biloxi unless we get to sort of, you know, a reasonable agreement with our lenders. You know, I do say Lincoln is a flagship property. The IGTJV is awesome. The 40,000 square feet we're building, you know, we're getting sort of momentum of bringing back some of our Asian play from Wynn. So maybe, you know, we sell, do a sale lease back on Lincoln a year, two years from now and to fund sort of the next growth phase of the company. From a share repurchase perspective, and we did do the tender for $103 million, we will continue to buy back shares consistently to help drive shareholder value.
spk11: Got it. Thank you so much for taking my questions.
spk01: Our next question comes from Dan Pulitzer from Wells Fargo.
spk14: Hey, good morning, everyone, and thanks for taking my questions. I wanted to hit on the regionals, and maybe this is a question for George, but across your properties, what are you seeing in terms of the promotional environment from larger competitors, smaller competitors, and across different markets? Thanks.
spk07: Sure, Dan. I think a good data point for you to look at is what Lee said a little earlier, is that margins are not only stabilized, but they're improving. So net of AC, we're at 39, I think it's 39.5% margin. So if you get kind of a little granular to answer your question about kind of the regions that we operate in, if you look at Rhode Island, you know, we're seeing Encore really starting to focus or shift their focus kind of closer in on their market, really towards the density of the population around them. So that only touches on the edges of our market and And so that really has no influence on our promotional activities. We focus primarily on the free play activity. We certainly have promotional activity as well, but we don't really see any impact on that market, and it continues to perform. If you look at another region, I would pick Evansville. It's somewhat of a protected market, so our cost structure there is pretty predictable. So we're really comfortable about that, and we're maintaining margins there as well as revenue. Biloxi continues to drive profitability from our higher segments of our database. So I think that touches on what Lee spoke about a little earlier, which is really, you know, we're focused on the higher end of the customer, higher trip worth. It's driving more trips from that segment. And when you look at the lower portions of our database, I'm not saying we're not as focused, but things like eliminating the buffets and so forth, you know, remove a lot of cost structure at really no detriment to the operations. That continues to improve there, actually. Kansas City is another market you want to look at. That's focused on just driving market share, and it's dropping that market share growth to the bottom line. So I guess in a nutshell, we're really comfortable about our operating model at this time. The only markets that seem to be performing not as well would be kind of lower markets lower demographic by way of household income markets. Vicksburg is a good example of that.
spk14: Got it. And then just switching to interactive, can you maybe give any color on early New York progress, your appetite to go into additional states that might be launching next year, and just how you think about integrating the Sinclair media components into the app to have a more competitive offering? Thanks.
spk09: Sure, thanks, Dan. I mentioned a few of the states earlier. As I said, we're going to lean very heavily into iGaming states, either iGaming states that are live today or ones that we believe have a high chance of legislation over the next couple of years. And, you know, I mentioned one, you know, Indiana, obviously, is an interesting one for us, where we have both RSN coverage and we have casino coverage. Our point of view in terms of the product development and how that twins to any kind of spend, well, firstly, I've said the product isn't exactly where we want it to be today. Even the iGaming product in New Jersey, I said, you know, we've got lots of things that we can still migrate over across from the UK, which I think will enhance that product. product, which is live now in Arizona and in New York, we haven't been heavily spending behind or pushing hard because we still have quite a few content integrations to do. You know, the likes of Radar Genius, IMG, et cetera, they're all coming. That will bring a much higher volume of sports. So we haven't been pushing that until we've got a much richer event lineup inside of that app. That said, in June, we did our fifth drop of that app. And that means that that's when it became foundational for us. We think we have a number of features which are important. But of course, we will continue to develop and drop further features into that app. So in terms of a roadmap for us, in terms of where next, we will be adding sports to New Jersey. over time. We will be adding sports into Ontario, and I said that will be our first combined app in the second half of the year, as well as then leaning in to Indiana, to Pennsylvania, to Illinois.
spk03: Got it. Thanks for the detail. Thank you.
spk01: Our next question comes from Jonathan Nervitt from Cowan.
spk04: Hey, good morning, Jonathan and for Lance. Thank you for taking our question. The first one is, Bobby, you mentioned that international got like a 20 million FX headwind this quarter, correct? Could we expect the same for the year on an EBITDA basis? Okay. And in terms of revenue then, what was the impact for the second quarter and what can we expect for the next two?
spk02: Yeah. Revenue for international interactive was on a floating basis was minus 14% year over year on a constant basis, minus 5%. So you can say that there is a 9% FX hit, but there's an incremental issue with FX related to Asian currencies. So we do, we do operate in USD, but the player lives and thinks in Asian currency. And so ultimately, like those consumers definitely pulled back. And so, you know, our guidance assumes that currency is effectively a 10% headwind into 22. And that's how we're thinking about it. But, you know, there is some issues that are not directly FX related or FX translation related. They're more that the consumer is thinking and operating in a different manner.
spk04: Sure, that makes sense. And in terms of for the next two quarters, can we expect that the second quarter in international will be the lowest? Or can we expect incremental improvement from here on in? Second quarter is the lowest. Second quarter is the lowest. Understood. Then maybe a little bit of an update on New York downstate casinos. I understand you're probably limited in what you can share, but I just want to know, like, how are you guys thinking about the opportunity still and if it could be shared in terms of, like, what would an investment in a potential property kind of look like or amount to, if you will?
spk09: Still interested in it, still exploring it, looking at potential sites. Of course, we expect the RFP process to begin later this year or early next year, and we
spk04: are minded to participate in that but it's very much in the development stage at the moment so no further nothing further to say on that right now oh got it and my last one um with a new prime minister coming in into the uk what if any uh changes are can we expect from the uk um gambling regularly or should it stay the course and nothing will change as from your perspective
spk09: Well, I mean, new prime minister, same party, right? So I don't expect radical shifts from, you know, the former prime minister to whoever succeeds him. You know, a lot of work has already been completed, of course, with the relevant ministry. And, you know, we'll have to wait and see whether it's Sunak or Trust on September 5th. But We wouldn't expect any radical departures from the current trajectory. I think from our perspective and from everybody in the industry's perspective, we'd like to get it out there. We'd like to get the consultation done. We'd like to be the other side so we know exactly what we're working with. Everyone's got stability. And I've said many, many times that, you know, whenever we've had regulatory shift in the UK over the following 18 months, we've been a net winner and I expect it to be the same here.
spk03: Thank you. Thank you.
spk01: Our next question comes from David Katz from Jefferies.
spk06: Morning. Thanks for taking my questions. Understanding the interactive strategy and performance and, you know, the land-based stability is clear. Can you just talk a bit more broadly about the capital strategy Right. You know, where are we trying to get to in terms of owned versus leased? You know, what is the leverage look like? And, you know, if you can help us with, you know, obviously there's some capex out there, but some repurchases sort of how that you expect that to progress over the next, you know, six months, one year, three years, et cetera.
spk02: Yeah. Thanks, David. I'll let Bobby pick that one up. Yeah. So you go into 2023, You know, rent is sort of $120 million on, you know, $400 plus of EBITDA when you factor in Tropicana, upside from Kansas City, IGT, Pennsylvania, Chicago. So, you know, we do believe that our land assets are a core asset and strategic asset of the company. You know, but at the end of the day, you know, if somebody is willing to pay me 14 times for the real estate under Lincoln, then we would do that. And we would go invest that in higher return projects. Our internal ROIC is 15%. And so if there's projects to do, which Chicago is clearly that, we're still evaluating what return we can get in Las Vegas. But I'll also tell you the climate or the the volatility in the market has really brought m a back which is something we've proven that you know we can buy assets for five six times ebitda and so if we can use our balance sheet to fund five to six times ebitda before sort of digital synergies that's a very attractive opportunity you know as i said In the call, we do focus on EBITDA from a leverage perspective, and we will be sub five times by mid-24.
spk06: Okay. Thanks very much.
spk03: Thanks, David.
spk01: Our last question comes from Jordan Bender from JMP Securities.
spk15: Morning. Thanks for taking my question. To follow up on the white paper comments, have you guys taken any preemptive actions kind of ahead of maybe a ruling there? And was any of the marketing reduction in the quarter maybe related to that as well?
spk09: Yeah, sure. Thanks, Jordan. We've been taking preemptive action on the white paper for about the last three years, I think. So we feel very well prepared for it. you know we've been gradually reducing slot stakes actually across the business for quite some time now and we're just moving at the moment to you know max stake of 25 pounds across the business in the UK we've been altering our jackpot strategy which I mentioned earlier which means more payouts to more players but at lower levels and and that also works into you know, kind of reinvestment strategies, which I think are going to be important once we get into different sets of thresholds for different players, which will come in during the evolution of the white paper. Because I think that, you know, remember the white paper is going to be a consultation. I think then, you know, that will give us a framework, but the details will get filled in over time. So I think that, yeah, we've had more than enough time to prepare for
spk15: um for what this might mean for us in the uk market and we've actually made a lot of progress against that great and then you reiterated the 60 million loss for the north america interactive for the year i was wondering you previously guided to about 125 million for the year i was wondering if that still is in place for revenue
spk02: Yeah, we're not focused on revenues. I mean, at the end of the day, we can go buy revenues, but we're just not going to do that.
spk09: Yeah, our focus is very much on the further development of that product, right? So we are continuing to invest in that. And then we believe that the revenues will come to us over time. But that's not our focus for this year. It's more about the quality of that product and getting into the right markets in the right depth.
spk15: Awesome. Thanks, Lee. Thanks, Bobby. Thank you.
spk01: No more questions at this time. And once again, if you'd like to ask a question, that's star and 1.
spk02: Thank you, Operator, and thanks, everyone. We'll be on the road next few months, and hopefully we see some of you at G2E.
spk03: Thank you.
spk01: Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.
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