Bally's Corporation

Good day and welcome to the Bally's Corporation second quarter 2023 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 question and answer 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 Jeff Chalfan, VP of Corporate Development and Strategy for Bally's. Please go ahead, sir.

Good morning, and thank you for joining us on today's call. The earnings release and presentation that accompany this call are available on our website in the investor relations section at www.bally's.com. With me on today's call are Chief Executive Officer Robeson Reeves, George Papineer, Valley's President, Marcus Glover, Valley's Chief Financial Officer, Jamin Patel, Valley's Vice Chairman, and Charlie Diao, Valley's Treasurer. 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 a reconciliation of forward-looking non-GAAP financial measures due to our inability to protect non-recurring expenses and one-time costs. Today's call is also being broadcast live on our investors' website and will be available for replay shortly after the completion of this call. Let me hand the call over to Robison.

Thank you, Jeff, and hello, everyone. This quarter saw Bally's making strides with new initiatives and achieving project milestones, setting a strong foundation for 2023 and beyond. Our core casino and resorts business produced record-setting second quarter revenue and EBITDA results with improving margins. International Interactive remained solid, led by the UK, which also produced record-setting second quarter revenue results driven by market share gains. North America Interactive iGaming continues to ramp up positively as we see the benefits of games as technology taking hold. We have made significant progress transitioning Ballybet onto the Canby and White Hat technology platforms, which is on track to roll out this summer. We intend to be live in three states by summer's end and at least seven states and four retail locations. Two are already operational by the end of 2023. With that in mind, we are pleased to reiterate our full year earnings guidance. We expect somewhat better performance from our core casinos and resorts and international interactive businesses versus our original expectations. slightly offset by an expected additional $10 million in costs in North America Interactive at the midpoint of our range, relating to our Pennsylvania iGaming launch, the transition of Ballybet, and some investments we've made in our omnichannel, including Ballylive. Though we expect some added development cost outlays in second half 23, the spend is expected to reduce as we grow and scale the North America Interactive business. Our confidence in our guidance is premised on our core businesses remaining strong, our growth projects coming online, and our North America interactive iGaming business continuing to ramp up. Earnings aside, once again, we have had a very active quarter in terms of our continued evolution of our company. We welcomed a new CFO, Marcus Glover, and a new corporate treasurer, Charlie Jiao, to our management team. Jamin Patel, a long-serving Bally's board member, has also seamlessly stepped into the role of vice chairman. Each has been a tremendous addition to Bally's and are working vigorously at integrating themselves into the company, improving our culture and our workflows. I remain deeply impressed with our global team and the progress we continue to make integrating Bally's three businesses. On an operating basis, We've seen several positive catalysts with long-term company impact and continue to advance our announced development projects. As you all know, we announced a deal with the Oakland A's of Major League Baseball and our partners at GLPI for the A's to relocate their stadium onto nine acres of our Las Vegas Tropicana site. We couldn't be more excited regarding this transformational one-of-a-kind development project along with the option value and long-term opportunity this announcement represents and has created for our company. While the planning process is only in the beginning phase, we'll share additional details as they emerge over the next 18 to 24 months. We closed on the acquisition of Tropicana in late September of 22 and have already materially increased the value of this asset, a testament to our management team's creativity and ingenuity. Next, we have made tremendous progress on the development of our temporary casino at the Medina Temple in Chicago after receiving preliminary suitability from the IGB in early June. The project remains on schedule for a September opening, which is estimated to generate 50 to 60 million of EBITDA in 2024. The feedback we have received from those who have toured the development has been quite positive. As for the permanent facility, We were successful in negotiating a deal with the Tribune Company to vacate the building by mid-2024 so we can begin the development of the casino at that time. We continue to expect the property to be open in 2026. We remain confident in the significant pent-up consumer demand for this project and eagerly anticipate generating results. In late April, we completed our renovation and expansion of our marquee Twin Rivers property in Lincoln, Rhode Island, and we are progressing towards completion of our Kansas City properties transformation. Both capital projects should be significant contributors to our organic growth for years to come. Additionally, the smoking ban that was implemented in Shreveport, Louisiana in 2020 was repealed beginning in June. We believe this will be an incremental driver of performance for the property, as its competitors just across the border in Bossier City do not have a smoking ban. When the smoking ban was initially implemented, business fell over 20% from its peak and has yet to fully recover. As for the UK white paper, which was released in late April, We continue to review the proposed measures and will work constructively with both the government and gambling commission to find an effective solution which ensures that reforms are appropriate and guarantee a safe and sustainable future. As we discussed on our last earnings call, we're in a strong position as we've been preparing our business strategy and compliance for some time. We embrace regulation and recognize that gaming is a public-private partnership. At its core, our international interactive business is performing very well, especially in the UK, where we continue to gain incremental market share. The regulatory environment in the UK challenges smaller competitors, causing some to leave. This allows compliant, larger entities to consolidate the market and expand their reach. Next, we launched iGaming in Pennsylvania in early June. While it's still quite early, we are pleased with the initial results. We believe our early performance in PA is a result of strong brand recognition and database. We are only scratching the surface of our player database omnichannel opportunities. Further, the Rhode Island legislature passed a bill to legalize iGaming in the state, naming Bally's as the sole provider. This is a very positive development, given our foothold in the state and our seasoned database. We thank the Rhode Island legislature for being such great partners. It is anticipated that we'll launch in March of 2024. Heading into 24, we're also excited about the prospect of launching the Bally's brand and online sports betting internationally. Post our Ballybet rollout, we'll be back on a path to diversify our revenues and EBITDA streams with ample cross-sell opportunities between our retail and digital businesses. This in turn will support our vision of becoming a premier full-service, vertically integrated casinos and resorts, iGaming, and online sports betting company, allowing us to leverage our Valley's brand globally. Turning to our operating segment's quarterly results, the casinos and resorts segment continues to trend well, even with certain properties facing incremental competition as our core casinos and resorts customer remains resilient. While we're keeping a close eye on spending trends and the health of our consumer generally, we are pleased with our overall portfolio. We generated record 2Q revenues of $333 million. That's up 11% year-on-year. An adjusted EBITDA of $111 million. That's up. 12% year-on-year, as George and his team continue to drive performance. We are seeing the benefits of the property improvements, reporting systems, centralized procurement, and cost controls implemented throughout the portfolio taking hold. Importantly, as we discussed earlier this year, our core portfolio's near-term capex cycle has peaked as several of our growth projects have come to or are nearing completion. We expect to continue delivering consistent operating performance from this core. International Interactive had a strong second quarter and is off to a robust first half of the year with continued algorithmic marketing optimizations taking place. The UK business continues to be the main driver of our performance, growing 12% in the second quarter, well ahead of the market. The formula of ARCU-UP FTDs up, while CPA is down significantly, continues to play out and drive performance. In Asia, we continue to look for stabilization after several months of increased volatility in performance. We've implemented changes and are working diligently to address this. International interactive margins have settled in the low-mid 30s, and we believe we can sustain margins at or above these levels. This is inclusive of our plans to reinvest in our core UK and Asia businesses. And we continue to see growth opportunities in Europe, Asia, and rest of the world with a focus on Brazil, including launching the Bally's brand and OSB in 2024. Turning back to North America Interactive, we remain keenly focused on growing our iGaming footprint. Our share in New Jersey continues to creep higher since surpassing 4% in the first quarter, and we remain on track to achieving our 6% to 8% longer-term share goal. We're working on building our presence in Ontario, and we're excited about the results we've seen thus far in Pennsylvania since launching in early June. Overall, our iGaming business is generating positive returns, and we are optimistic. We also look forward to the recently passed iGaming legislation in Rhode Island, a potential long-term game changer for our iGaming business. In summary, our goals for the remainder of 2023 and into 2024 include open the Chicago temporary casino in September, grow North America interactive iGaming market share profitably, roll out Ballybet beginning this summer with our new technology partners, harness our omnichannel data capabilities, and grow the Bally's brand globally, including OSB. In addition to our growth initiatives, it is important to emphasize that our team remains focused on growing our revenues and adjusted EBITDA for our core casinos and resorts and our international interactive segments, and again, are reiterating our guidance for the full year. Before turning to Marcus, I'd once again welcome him to the company.