Bally's Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 report 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: • 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 businesses generally; • uncertainties surrounding the COVID-19 pandemic, including limitations on our operations, increased costs, changes in customer behaviors, impact on our employees and the ongoing impact of COVID-19 on general economic conditions • 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; and • other risks identified in Part I. Item 1A. "Risk Factors" of Bally’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on March 1, 2022 and other filings with the SEC. 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 place undue reliance on our forward-looking statements. 41 Overview We are a global gaming, hospitality and entertainment company with a portfolio of casinos and resorts and online gaming businesses. We provide our customers with physical and interactive entertainment and gaming experiences, including traditional casino offerings, iCasino, online bingo games, sportsbook, daily fantasy sports (“DFS”) and free-to-play games (“F2P”). As of March 31, 2022, we own and manage 14 land-based casinos and one horse racetrack in ten states across the United States (“US”) operating under Bally’s brand. Our land-based casino operations include approximately 14,400 slot machines, 500 table games and 3,900 hotel rooms, along with various restaurants, entertainment venues and other amenities. Certain of our properties are leased under a master lease agreement with Gaming and Leisure Properties, Inc. (“GLPI”), a publicly traded gaming-focused real estate investment trust (“REIT”). With our acquisition of London-based Gamesys Group Ltd. (“Gamesys”) on October 1, 2021, we expanded our geographical and product footprints to include an iGaming business with well-known brands providing iCasino and online bingo experiences to our global online customer base with concentrations in Europe and Asia and a growing presence in North America. Our iCasino and online bingo platforms and games content, sportsbook and F2P games are provided on a business-to-business (“B2B”) as well as a business-to-consumer (“B2C”) basis. Our revenues are primarily generated by these gaming and entertainment offerings. We own and operate our proprietary software and technology stack designed to allow us to provide consumers differentiated offerings and exclusive content. Our Strategy and Business Developments 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 represents a significant strategic opportunity for the future growth of Bally’s. We seek to increase revenues at our casinos and resorts 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 acquisitions have expanded and diversified us from financial and market exposure perspectives, while continuing to mitigate our susceptibility to regional economic downturns, idiosyncratic regulatory changes and increases in regional competition. In 2021, we acquired three casino and resort properties - Bally’s Lake Tahoe, Bally’s Evansville and Bally’s Quad Cities. We also agreed to purchase Tropicana Las Vegas in Las Vegas, Nevada and announced plans to construct a land-based casino in Centre County, Pennsylvania, adding to our land-based casino presence. With the pending acquisition of Tropicana Las Vegas and the completion of construction in Centre County, Pennsylvania, we will own and manage 16 land-based casinos across 11 states. In addition, we also expanded our interactive business by: • launching our Bally Sports Network through our partnership with Sinclair, which combines our sports betting technology with Sinclair’s expansive footprint. With Bally’s brand, the media partnership and the unencumbered skins (gaming licenses) that we have acquired and reserved in our portfolio, we can now provide our customers omni-channel gaming and entertainment across our various physical properties while having a singular online and mobile presence with a brand that is synonymous with gaming, hospitality and entertainment; • acquiring Gamesys, a leading international online gaming operator that provides gaming entertainment to a global customer base; and • acquiring Bally’s Interactive, formerly Bet.Works, and its proprietary technology stack and turnkey solutions, which include marketing, operations, customer service, risk management and compliance. We believe that the Bet.Works acquisition provides us with a suite of advanced omni-channel products, platforms, software and content solutions positioning us to deliver competitive sports betting and iCasino offerings to customers on a national scale. These steps have positioned us to become a leading, full-service, vertically integrated sports betting and iGaming company in the US with physical casinos and online gaming solutions united under a single, leading brand. Gamesys Acquisition On October 1, 2021, we acquired Gamesys, a leading UK-based global online gaming operator. In connection with the acquisition, Gamesys shareholders received, in the aggregate, 9,773,537 shares of our common stock and $2.08 billion in cash. We believe that Gamesys’ proven technology platform will foster our continued buildout of our interactive offerings in North America, including real-money gaming options in online sports betting and iGaming. Additionally, unifying Bally’s and 42 Gamesys’ player databases and technologies provides us with one of the largest portfolios of omni-channel cross-selling opportunities, consisting of land-based gaming, online sports betting, iCasino, poker, bingo, daily fantasy sports and free-to-play games. We believe that these offerings, coupled with our media partnership with Sinclair Broadcast Group, position the Company to capitalize on significant growth opportunities in the rapidly expanding U.S. online entertainment and sports betting markets. Operating Structure Our business is organized into three reportable segments: (1) Casinos & Resorts, (2) North America Interactive, and (3) International Interactive. Casinos & Resorts - includes our 14 land-based casino properties and one horse racetrack: Property Name Location Bally’s Twin River Lincoln Casino Resort (“Bally’s Twin River”) Lincoln, Rhode Island Bally’s Tiverton Casino & Hotel (“Bally’s Tiverton”) Tiverton, Rhode Island Bally’s Dover Casino Resort (“Bally’s Dover”) Dover, Delaware Bally’s Atlantic City Casino Resort (“Bally’s Atlantic City”) Atlantic City, New Jersey Bally’s Evansville Casino & Hotel (“Bally’s Evansville”) Evansville, Indiana Hard Rock Hotel & Casino Biloxi (“Hard Rock Biloxi”) Biloxi, Mississippi Bally’s Vicksburg Casino (“Bally’s Vicksburg”) Vicksburg, Mississippi Bally’s Kansas City Casino (“Bally’s Kansas City”) Kansas City, Missouri Bally’s Black Hawk (3 properties) Black Hawk, Colorado Bally’s Shreveport Casino & Hotel (“Bally’s Shreveport”) Shreveport, Louisiana Bally’s Lake Tahoe Casino Resort (“Bally’s Lake Tahoe”) Lake Tahoe, Nevada Bally’s Quad Cities Casino & Hotel (“Bally’s Quad Cities”) Rock Island, Illinois Bally’s Arapahoe Park Aurora, Colorado North America Interactive - includes the following North America businesses: • Bally’s Interactive, a business-to-business-to-consumer (“B2B2C”) sportsbook and iCasino platform provider and operator; • Horses Mouth Limited (“SportCaller”), a B2B and F2P game provider for sports betting companies; • Monkey Knife Fight (“MKF”), a B2C DFS platform and operator; • Joker Gaming, known as Live at the Bike, an online subscription streaming service featuring livestream and on-demand poker videos and podcasts; • Association of Volleyball Professionals (“AVP”), a professional beach volleyball organization and host of the longest-running domestic beach volleyball tour; • Telescope, Inc. (“Telescope”), a provider of real-time audience engagement solutions for live events, gamified second screen experiences and interactive livestreams; and • Degree 53, a United Kingdom (“UK”)-based creative agency that specializes in multi-channel website and personalized mobile app and software development for online gambling and sports industries. The North America Interactive reportable segment also includes the North American operations of Gamesys. International Interactive - includes the following businesses in Europe and Asia: • Gamesys, a B2B2C iCasino and online bingo platform provider and operator; and • Solid Gaming, a games content aggregation business. Refer to Note 18 “ Segment Reporting ” to our condensed consolidated financial statements for additional information on our segment reporting structure. 43 Rhode Island Regulatory Agreement On February 17, 2022, certain of our subsidiaries, the Rhode Island Department of Business Regulation (“DBR”) and the Division of Lotteries (“DoL”) of the Rhode Island Department of Revenue amended and restated our Regulatory Agreement (the “Regulatory Agreement”). The Regulatory Agreement contains financial and other covenants that, among other things, (1) restrict the acquisition of stock and other financial interests in us, (2) relate to the licensing and composition of members of our management and Board of Directors (the “Board”), (3) prohibit certain competitive activities and related-party transactions and (4) restrict our ability to declare or make restricted payments (including dividends), incur additional indebtedness or take certain other actions, if our leverage ratio exceeds 5.50 to 1.00 (in general being gross debt divided by Adjusted EBITDA, each as defined in the Regulatory Agreement). The Regulatory Agreement also provides affirmative obligations, including setting a minimum number of employees that we must employ in Rhode Island and providing the DBR and DoL with periodic information updates about us. Among other things, the Regulatory Agreement prohibits us and our subsidiaries from owning, operating, managing or providing gaming specific goods and services to any properties in Rhode Island (other than Bally’s Twin River and Bally’s Tiverton), Massachusetts, Connecticut or New Hampshire. A failure to comply with the Regulatory Agreement could subject us to injunctive or monetary relief, payments to the Rhode Island regulatory agencies and ultimately the revocation or suspension of our licenses to operate in Rhode Island. In addition, our master contracts with Rhode Island were extended through June 30, 2043, and allow for consolidation of promotional points between Bally’s Twin River and Bally’s Tiverton, obligate Bally’s Twin River to build a 50,000 square foot expansion, obligate Bally’s Twin River to lease at least 20,000 square feet of commercial space in Providence, and commit us to invest $100 million in Rhode Island over this extended term, including an expansion and the addition of new amenities at Bally’s Twin River. June 2021 legislation enacted in Rhode Island authorized a joint venture with International Gaming Technology PLC (“IGT”) to become a licensed technology provider and supply the State of Rhode Island with all Video Lottery Terminals (“VLTs”) at both Bally’s Twin River and Bally’s Tiverton for a 20.5-year period starting January 1, 2023. IGT will own 60% of the joint venture. As of July 1, 2021, until the joint venture is operating, we will supply 23% of all VLTs in return for 7% net terminal income from the machines. COVID-19 Pandemic The COVID-19 pandemic significantly impacted, and could continue to impact, our business in a material manner. Currently, all of our properties are open and operating with minimal restrictions. The pandemic and its consequences dramatically reduced travel and demand for hotel rooms and other casino resort amenities, which had a negative impact on our results. While many restrictions have been relaxed at this point, there is no assurance that a resurgence of future COVID-19 variants will not cause disruption to our business, including the closure of our facilities. In addition, future demand for gaming activities may be negatively impacted by the adverse changes in the perceived or actual economic climate due to the impact of the COVID-19 pandemic. Our business could also be impacted if the disruptions from the COVID-19 pandemic impact construction projects, including our project in Centre County, Pennsylvania, described above. Key Performance Indicators The main key performance indicators used in managing our business is Adjusted EBITDA and Casinos & Resorts Adjusted EBITDAR. 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. Management utilizes Casinos & Resorts Adjusted EBITDAR which is Adjusted EBITDA (as defined above) for the Company’s Casinos & Resorts segment plus rent expense associated with triple net operating leases with GLPI for the real estate assets used in the operation of Bally’s Evansville and Bally’s Dover and the assumption of the lease for real estate and land underlying the operations of the Bally’s Lake Tahoe property. 44 We use Adjusted EBITDA and Casinos and Resorts Adjusted EBITDAR 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 use Adjusted EBITDA and Casinos & Resorts Adjusted EBITDAR 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 and 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. These measures are presented because management believes that they are commonly used measures of performance in the gaming industry and that it is considered by many to be key indicators of our operating results. Management believes that while certain items excluded from Adjusted EBITDA and Casinos & Resorts Adjusted EBITDAR 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 and Casinos & Resorts Adjusted EBITDAR should not be construed as an alternative to GAAP net income, the most directly comparable GAAP measure, as an indicator of our performance. In addition, Adjusted EBITDA and Casinos & Resorts Adjusted EBITDAR 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. First Quarter 2022 Results We reported revenue and income from operations of $548.3 million and $22.5 million, respectively, for the three months ended March 31, 2022, compared to revenue and income from operations of $192.3 million and $29.5 million, respectively, for the same period last year. As of the first quarter of 2022, our properties are at full capacity and are operating under minimal restrictions. In the first quarter last year, our properties were operating at partial capacity with limited VLTs and table games being available to guests along with other restrictions on service offerings and amenities. Results of Operations The following table presents, for the periods indicated, certain revenue and income items: Three Months Ended March 31, (in millions) 2022 2021 Total revenue $ 548.3 $ 192.3 Income from operations 22.5 29.5 Net income (loss) 1.9 (10.7) 45 The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue: Three Months Ended March 31, 2022 2021 Total revenue 100.0 % 100.0 % Gaming, hotel, food and beverage, retail, entertainment and other expenses 47.4 % 34.5 % Advertising, general and administrative 33.1 % 41.9 % Other operating costs and expenses 1.0 % 1.6 % Depreciation and amortization 14.4 % 6.7 % Total operating costs and expenses 95.9 % 84.7 % Income from operations 4.1 % 15.3 % Other income (expense) Interest income — % 0.3 % Interest expense, net of amounts capitalized (8.4) % (10.8) % Change in value of naming rights liabilities 2.4 % (14.3) % Other, net 1.1 % 1.4 % Total other expense, net (4.8) % (23.4) % Loss before provision for income taxes (0.7) % (8.1) % Benefit from income taxes (1.0) % (2.5) % Net income (loss) 0.3 % (5.6) % __________________________________ Note: Amounts in table may not subtotal due to rounding. 46 Segment Performance During the fourth quarter of 2021, the Company updated its reportable segments to better align with its strategic growth initiatives in light of recent acquisitions. As a result of this realignment, the Company determined it had three reportable segments: Casinos & Resorts, North America Interactive and International Interactive. Additionally, during the first quarter of 2022 as a result of the segment realignment, the Company changed its methodology for allocating certain corporate operating expenses within advertising, general and administrative expense previously reported in “Other” to directly apply such costs to the segment supported. Prior year amounts have been reclassified to conform to the new segment presentation. The following table sets forth certain financial information associated with results of operations for the three months ended March 31, 2022 and 2021. Non-gaming revenue includes hotel, food and beverage and retail, entertainment 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. Three Months Ended March 31, (in thousands, except percentages) 2022 2021 $ Change % Change Revenue: Gaming Casinos & Resorts $ 217,805 $ 154,429 $ 63,376 41.0 % North America Interactive 6,645 849 5,796 682.7 % International Interactive 239,252 — 239,252 100.0 % Total Gaming revenue 463,702 155,278 308,424 198.6 % Non-gaming Casinos & Resorts 62,165 35,004 27,161 77.6 % North America Interactive 8,582 1,984 6,598 332.6 % International Interactive 13,822 — 13,822 100.0 % Total Non-gaming revenue 84,569 36,988 47,581 128.6 % Total revenue 548,271 192,266 356,005 185.2 % Operating costs and expenses: Gaming Casinos & Resorts $ 76,381 $ 46,950 $ 29,431 62.7 % North America Interactive 7,329 304 7,025 2,310.9 % International Interactive 135,502 — 135,502 100.0 % Total Gaming expenses 219,212 47,254 171,958 363.9 % Non-gaming Casinos & Resorts 30,048 18,641 11,407 61.2 % North America Interactive 1,318 514 804 156.4 % International Interactive 9,271 — 9,271 100.0 % Total Non-gaming expenses 40,637 19,155 21,482 112.1 % Advertising, general and administrative Casinos & Resorts 99,751 65,648 34,103 51.9 % North America Interactive 26,755 618 26,137 4,229.3 % International Interactive 34,974 — 34,974 100.0 % Other 20,136 14,233 5,903 41.5 % Total Advertising, general and administrative 181,616 80,499 101,117 125.6 % Margins: Gaming expenses as a percentage of Gaming revenue 47 % 30 % 17 % Non-gaming expenses as a percentage of Non-gaming revenue 48 % 52 % (4) % Advertising, general and administrative as a percentage of Total revenue 33 % 42 % (9) % 47 Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 Total revenue Total revenue for the three months ended March 31, 2022 and 2021 consisted of the following (in thousands): Three Months Ended March 31, 2022 2021 $ Change % Change Gaming $ 463,702 $ 155,278 $ 308,424 198.6 % Hotel 26,935 13,059 13,876 106.3 % Food and beverage 23,988 15,500 8,488 54.8 % Retail, entertainment and other 33,646 8,429 25,217 299.2 % Total revenue $ 548,271 $ 192,266 $ 356,005 185.2 % Total revenue for the three months ended March 31, 2022 increased 185.2% to $548.3 million, from $192.3 million in the same period last year. We saw gaming, hotel, food and beverage, and retail, entertainment and other revenues grow, as we were able to operate with less restrictions across our properties compared to the first quarter of 2021 resulting from developments in the COVID-19 pandemic and an increase in consumer confidence. In addition, incremental revenues from acquisitions completed after the first quarter of 2021, which included Gamesys, Bally’s Evansville, Bally’s Lake Tahoe, Bally’s Quad Cities and several of the North America Interactive acquisitions (collectively, the 2021 Acquisitions”), contributed, in the aggregate, $331.3 million of revenue. Operating costs and expenses In the first quarter of 2022, we recorded total operating costs and expenses of $525.8 million, up $363.0 million, or 223.0%, from $162.8 million in the first quarter last year. The change in total operating costs and expenses was driven by fluctuations in our gaming and non-gaming expenses, advertising general and administrative costs, acquisition, integration and restructuring expenses and other operating costs and expenses, each described below. We expect our total operating costs and expenses to increase in 2022 as compared to 2021 as a result of the inclusion of our recent acquisitions, most notably, Gamesys. Gaming and non-gaming expenses Gaming expenses for the three months ended March 31, 2022 increased $172.0 million, or 363.9%, to $219.2 million from $47.3 million in 2021. This increase was primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $162.4 million. Non-gaming expenses for the three months ended March 31, 2022 increased $21.5 million, or 112.1%, to $40.6 million from $19.2 million in the same period last year. This increase was primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $18.4 million. Advertising, general and administrative Advertising, general and administrative expense for the three months ended March 31, 2022 increased $101.1 million, or 125.6%, to $181.6 million from $80.5 million in the same period last year primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $85.9 million. Acquisition, integration and restructuring We incurred $5.3 million of acquisition, integration and restructuring expense during the three months ended March 31, 2022, compared to $12.3 million in the same period last year mainly due to a reduction in costs attributable to the acquisition of Gamesys and our other interactive acquisitions which closed in 2021. 48 Other operating costs and expenses During the three months ended March 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 in Louisiana shutting down our Hard Rock Biloxi property for three days during the fourth quarter of 2020. Additionally, during the three months ended March 31, 2022 and 2021, we recorded rebranding expense of $0.3 million and $0.9 million, respectively, in connection with our company rebranding initiatives. Depreciation and amortization Depreciation and amortization for the three months ended March 31, 2022 was $78.9 million, an increase of $66.1 million, or 516.9%, compared to the same period last year. The increase in depreciation and amortization is attributable to the inclusion of our 2021 Acquisitions, most notably amortization expense from our Gamesys business, which contributed an aggregate $56.9 million in the first quarter of 2022. Income (loss) from operations Income from operations was $22.5 million, or 4.11% as a percentage of total revenue, for the three months ended March 31, 2022 compared to $29.5 million, or 15.33%, in the same period last year. The change year-over-year was driven by revenue growth resulting from a return in visitation to our properties as COVID-19 restrictions were lifted coupled with a benefit from our 2021 Acquisitions, offset by increased operating expenses. Other income (expense) Total other expense decreased $18.8 million to $26.2 million for the first quarter of 2022 from $45.0 million in the same period last year. The decrease in other expense was primarily attributable to $13.4 million of income resulting from a reduction in the naming rights liability for performance warrants associated with our contracts with Sinclair in the first quarter of 2022 compared to expense of $25.9 million due to an increase in the liability in the first quarter of 2021, offset by an increase in interest expense of $25.0 million due to increased borrowings and higher interest rates year-over-year. Refer to Note 2 “ Significant Accounting Policies ” for further information on the Sinclair performance warrants. Benefit from income taxes Benefit from income taxes for the three months ended March 31, 2022 was $5.6 million compared to $4.8 million in the prior year. The effective tax rate for the first quarter of 2022 was 151.2% compared to 31.1% in the prior year. The increase in the effective tax rate was primarily due to one-time benefits of $4.9 million recorded during the quarter by Gamesys entities relative to a low pre-tax book loss. Net income (loss) and net income (loss) per share Net income for the three months ended March 31, 2022 was $1.9 million, or $0.03 per diluted share, compared to a net loss of $10.7 million, or $0.30 per diluted share, for the three months ended March 31, 2021. Adjusted EBITDA and Adjusted EBITDAR by Segment Consolidated Adjusted EBITDA was $115.0 million for the three months ended March 31, 2022, up $62.5 million, or 119.1%, from $52.5 million in the same period last year. Adjusted EBITDA for the Casinos & Resorts segment for the first quarter of 2022 increased $15.6 million, or 26.7%, to $73.8 million from $58.2 million compared to the same prior year period. The increase year over year was driven by the additions of Bally’s Lake Tahoe, Bally’s Evansville and Bally’s Quad Cities in the current year. Casinos & Resorts Adjusted EBITDAR was $85.2 million which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below. There was no such rent expense in the prior year period. Adjusted EBITDA for the North America Interactive segment for the first quarter of 2022 was $(19.3) million compared to $1.4 million in the same prior year period due to a net loss of $25.4 million compared to net income of $0.5 million in the prior year mainly due to increased operating costs. 49 Adjusted EBITDA for the International Interactive segment for the first quarter of 2022 was $73.3 million directly attributable to our acquisition of Gamesys on October 1, 2021. The following tables reconcile Adjusted EBITDA and Casinos & Resorts Adjusted EBITDAR, non-GAAP measures, to net income (loss), as derived from our financial statements (in thousands): Three Months Ended March 31, 2022 Casinos & Resorts North America Interactive International Interactive Other Total Revenue $ 279,970 $ 15,227 $ 253,074 $ — $ 548,271 Net income (loss) $ 28,023 $ (25,373) $ 28,808 $ (29,569) $ 1,889 Interest expense, net of interest income 4 (2) 166 45,517 45,685 Provision (benefit) for income taxes 9,228 (2,884) (3,167) (8,752) (5,575) Depreciation and amortization 15,353 8,974 46,064 8,490 78,881 Non-operating (income) expense (1) — (1,595) 1,115 (18,999) (19,479) Acquisition, integration and restructuring — 289 341 4,650 5,280 Share-based compensation — — — 5,095 5,095 Other, net (2) (164) 850 — 2,491 3,177 Allocation of corporate costs 21,346 416 — (21,762) — Adjusted EBITDA $ 73,790 $ (19,325) $ 73,327 $ (12,839) $ 114,953 Rent expense associated with triple net operating leases (3) 11,411 Adjusted EBITDAR $ 85,201 __________________________________ (1) Non-operating income (expense) includes: (i) change in value of naming rights liabilities and (ii) adjustment on bargain purchase, and (iii) other, net. (2) Other includes the following non-recurring items: (i) deal-related, rebranding, expansion and pre-opening expenses, (ii) costs related to pursuing sports betting, iGaming and lottery access in various jurisdictions, (iii) costs related to pursuing sports betting, iGaming and lottery access in various jurisdictions, (iv) non-routine legal expenses, and (v) net gains related to insurance recoveries. (3) Consists of the operating lease components contained within our triple net master lease dated June 4, 2021 with GLPI and the triple net lease assumed in connection with our acquisition of Bally’s Lake Tahoe, which is primarily our individual triple net leases with GLPI for the real estate assets used in the operation of Bally’s Evansville and Bally’s Dover, and the assumption of the lease for real estate and land underlying the operations of the Bally’s Lake Tahoe facility. 50 Three Months Ended March 31, 2021 Casinos & Resorts North America Interactive Other Total Revenue $ 189,433 $ 2,833 $ — $ 192,266 Net income (loss) $ 33,101 $ 459 $ (44,265) $ (10,705) Interest expense, net of interest income 11 — 20,263 20,274 Provision (benefit) for income taxes 11,946 (92) (16,684) (4,830) Depreciation and amortization 11,608 1,032 146 12,786 Non-operating (income) expense (1) — (52) 24,787 24,735 Acquisition, integration and restructuring — — 12,258 12,258 Share-based compensation — — 4,483 4,483 Other, net (2) (10,044) — 3,518 (6,526) Allocation of corporate costs 11,601 50 (11,651) — Adjusted EBITDA $ 58,223 $ 1,397 $ (7,145) $ 52,475 __________________________________ (1) Non-operating income (expense) includes: (i) change in value of naming rights liabilities, and (ii) other, net. (2) Other includes the following non-recurring items: (i) deal-related, rebranding, expansion and pre-opening expenses, (ii) Credit Agreement amendment related expenses, (iii) costs related to pursuing sports betting, iGaming and lottery access in various jurisdictions, (iv) non-routine legal expenses, and (v) net gains related to insurance recoveries. Critical Accounting Estimates There were no material changes in critical accounting 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 ended December 31, 2021 for a complete list of our Critical Accounting Estimates. Recent Accounting Pronouncements Refer to Note 3 “ 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 Overview 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 (as defined herein) and proceeds from the issuance of debt and equity securities. We assess liquidity in terms of the ability to generate cash or obtain financing in order to fund operating, investing and debt service requirements. Our primary ongoing cash requirements include the funding of operations, capital expenditures, acquisitions and other investments in line with our business strategy and debt repayment obligations and interest payments. 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 have continued to invest in our land-based casino business and began to build on our interactive/iGaming gaming business despite the COVID-19 pandemic. We believe that existing cash balances, operating cash flows and availability under our Revolving Credit Facility, will be sufficient to meet funding needs for operating, capital expenditure and debt service purposes. Additionally, while we may seek other funding alternatives, we believe existing sources will provide the cash necessary to fund our proposed acquisition of Tropicana Las Vegas. 51 Cash Flows Summary Three Months Ended March 31, (in thousands) 2022 2021 Net cash provided by operating activities $ 20,810 $ 25,870 Net cash used in investing activities (71,955) (28,884) Net cash provided by financing activities 4,405 31,861 Effect of foreign currency on cash and cash equivalents (4,430) 69 Net change in cash and cash equivalents and restricted cash (51,170) 28,916 Cash and cash equivalents and restricted cash, beginning of period 274,840 126,555 Cash and cash equivalents and restricted cash, end of period $ 223,670 $ 155,471 Operating Activities Net cash provided by operating activities for the three months ended March 31, 2022 was $20.8 million, compared to $25.9 million for the three months ended March 31, 2021. Investing Activities Net cash used in investing activities for the three months ended March 31, 2022 was $72.0 million, an increase of $43.1 million compared to the three months ended March 31, 2021. The change was primarily driven by a $39.2 million increase in capital expenditures, mainly attributable to our expansion and renovation projects at Bally’s Atlantic City, Bally’s Twin River and Bally’s Kansas City, and $15.0 million paid for internally developed software, offset by a reduction of $22.7 million for cash paid for acquisitions. Financing Activities Net cash provided by financing activities for the three months ended March 31, 2022 was $4.4 million compared to $31.9 million for the three months ended March 31, 2021. Cash provided by financing activities in the first quarter of 2022 was driven by borrowings of $105.0 million, offset by $84.9 million of repayments and $13.3 million of share repurchases under our capital return program, explained below. In the first quarter of 2021, cash provided by financing activities was driven by debt borrowings of $40.0 million. Capital Return Program On June 14, 2019, we announced that our Board approved a capital return program allowing for a total of up to $250 million for a share repurchase program and payment of dividends. This was subsequently increased by $100 million on February 10, 2020 and another $350 million on October 4, 2021. During the three months ended March 31, 2022, we repurchased 350,616 common shares for an aggregate price of $13.3 million. As of March 31, 2022, there was $334.6 million available for use under the capital return program. In connection with the COVID-19 pandemic, we ceased paying dividends. We do not currently intend to pay any dividends on our common stock in the foreseeable future. Any future determinations relating to our dividend policies will be made at the discretion of our Board and will depend on conditions then existing, including our financial condition, results of operations, contractual restrictions, capital and regulatory requirements and other factors our Board may deem relevant. Common Stock and Warrant Offerings 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 issued to affiliates of Sinclair warrants to purchase 909,090 common shares at the same offering price. The net proceeds from the public offering and the private warrant sale, after deducting underwriting discounts, were $671.4 million and $50.0 million, respectively, and were used to finance a portion of the purchase price of Gamesys and to retire certain of our existing indebtedness. 52 Debt and Lease Obligations Senior Notes On August 20, 2021, we issued $750.0 million aggregate principal amount of 5.625% senior notes due 2029 and $750.0 million aggregate principal amount of 5.875% Senior Notes due 2031 (together, the “Senior Notes”). On October 1, 2021, upon the closing of the Gamesys acquisition, we assumed the issuer obligation under the Senior Notes. The indenture contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, (1) incur additional indebtedness, (2) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, (3) enter into certain transactions with affiliates, (4) sell or otherwise dispose of assets, (5) create or incur liens and (6) merge, consolidate or sell all or substantially all of the Company’s assets. These covenants are subject to exceptions and qualifications set forth in the indenture. Credit Facility On October 1, 2021, we entered into the Credit Agreement providing for a senior secured term loan facility in an aggregate principal amount of $1.945 billion (the “Term Loan Facility”), which will mature in 2028, and a senior secured revolving credit facility in an aggregate principal amount of $620.0 million (the “Revolving Credit Facility”), which will mature in 2026. The credit facilities allow us to increase the size of the Term Loan Facility or request one or more incremental term loan facilities or increase commitments under the Revolving Credit Facility or add one or more incremental revolving facilities in an aggregate amount not to exceed the greater of $650 million and 100% of the Company’s consolidated EBITDA for the most recent four-quarter period plus or minus certain amounts as specified in the Credit Agreement, including an unlimited amount subject to compliance with a consolidated total secured net leverage ratio. The credit facilities contain covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, sell assets, make certain investments, and grant liens. These covenants are subject to exceptions and qualifications set forth in the Credit Agreement. The Revolving Credit Facility contains a financial covenant regarding a maximum first lien net leverage ratio that applies when borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment. Refer to Note 12 “ Long-Term Debt ” in Part I, Item 1 of this Quarterly Report on Form 10-Q. GLPI Master Lease Our Master Lease is accounted for as an operating lease and was $380.6 million as of March 31, 2022. In connection with the acquisition of Bally’s Evansville, an affiliate of GLPI agreed to acquire the real estate associated with the Evansville Casino for $340.0 million and lease it to us under a master lease agreement (the “Master Lease”). GLPI has also agreed to acquire the real estate associated with Bally’s Dover for $144.0 million and lease it back to the us under the Master Lease. The Master Lease with GLPI has an initial term of 15 years and includes four, five-year options to renew and requires combined minimum annual payments of $40.0 million, subject to escalation. The acquisition of Bally’s Evansville and commencement of the Master Lease was June 4, 2021. During the second quarter of 2021, the Company sold the real estate associated with Bally’s Dover to GLPI and recorded a gain of $53.4 million representing the difference in the transaction price and the de-recognition of assets. On April 1, 2022, we completed a sale-leaseback transaction relating to the Bally’s Quad Cities and Bally’s Black Hawk casino properties for a cash purchase price of $150 million payable by GLPI. These properties will be added to the Master Lease with GLPI and will have initial annual fixed rent of $12 million, subject to increases over time. 53 We also expect to finance our proposed agreement to acquire the Tropicana Las Vegas for $150 million through sale-leaseback transactions with GLPI. Operating leases In addition to the operating lease components under the GLPI Master Lease, the Company is committed under various long-term operating lease agreements primarily related to submerged tidelands, property and equipment at Hard Rock Biloxi, Bally’s Kansas City, Bally’s Shreveport and Bally’s Lake Tahoe. Additionally, certain of the Company’s subsidiaries lease office space, data centers, parking space, memorabilia and equipment under agreements classified as operating leases that expire on various dates through 2030. Minimum rent payable under operating leases was $821.9 million as of March 31, 2022. Refer to Note 13 “ Leases ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. Capital Expenditures Capital expenditures are accounted for as either project, maintenance or capitalized software expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair, along with spending on other small projects that do not fit into the project category. Capitalized software expenditures relate to the creation, production and preparation of software for use in our online gaming operations. For the first quarter ended March 31, 2022, capital expenditures were $54.5 million compared to $15.3 million in the same period last year. In 2021 as our properties reopened and operations resumed, we commenced spending on maintenance and planned projects at our casino properties though our progress lagged due to nationwide supply chain shortages. We expect that capital expenditures in 2022 will exceed 2021 amounts as we plan to make significant progress towards project goals, particularly at Bally’s Twin River, Bally’s Atlantic City and Bally’s Kansas City, and increase spending relating to the maintenance and improvements at our other casino properties. In addition, during 2022 we plan to commence construction on the Centre County, Pennsylvania development project. We expect to fund these expenditures from a combination of cash flow from operations and cash on hand. Because the pandemic is ongoing and the duration and severity remains unclear, it is difficult to forecast any impacts on our future results and therefore, planned spending on these projects may be impacted as we continue in 2022. A summary of our planned projects follows: Bally’s Twin River - In connection with our partnership with IGT, we have committed to invest $100 million in Bally’s Twin River over the term of our master contract with Rhode Island to expand the property and add additional amenities along with other capital improvements. Plans include adding a 40,000-square-foot gaming area, an additional casino bar, and a 14,000-square-foot spa. Construction began in September 2021 with a target completion in the fourth quarter of 2022. Spending in 2022 is estimated at approximately $50 million. Bally’s Atlantic City - Construction on our Bally’s Atlantic City property commenced in 2021. We are committed to invest approximately $100 million over five years to refurbish and upgrade Bally’s Atlantic City’s facilities and expand its amenities, including renovated hotel rooms and suites, outdoor beer hall and lobby bar. Spending in 2022 is estimated at approximately $40 million. Bally’s Kansas City - We began construction on the planned redevelopment project of Bally’s Kansas City in November 2021. We believe the redevelopment of the property, which includes a 40,000 square foot land-based building, restaurant, bar and retail space, will improve the property and guest experience and drive growth and our return on investment. Spending on the project is estimated to be approximately $50 million, largely in 2022, with a target completion date in the first half of 2023. Centre County, PA - On December 31, 2020, we signed a framework agreement with entities affiliated with an established developer to design, develop, construct and manage a Category 4 licensed casino in Centre County, Pennsylvania. Construction of the casino is expected to begin in the second half of 2022 and will take approximately one year to complete. Subject to receipt of regulatory approvals, it will house up to 750 slot machines and 30 table games. The casino will also provide, subject to receipt of separate licenses and certificates, retail sports betting, online sports betting and online gaming. We estimate the total cost of the project, including construction, licensing and sports betting/iGaming operations, to be approximately $120 million. If completed, we will acquire a majority equity interest in the partnership, including 100% of the economic interests of all retail sports betting, online sports betting and iGaming activities associated with the project. 54 Other Contractual Obligations Bally’s Trade Name - We acquired Bally’s brand from Caesars Entertainment, Inc. on October 13, 2020 for $20.0 million payable in cash in two equal installments of $10.0 million on the first and second anniversary of the purchase date. The Company made the first installment payment during 2021 and will pay the second installment in 2022. Deferred Consideration - In September of 2019, prior to our acquisition of Gamesys, Gamesys (Holdings) Limited (“GHL”) was acquired by JPJ Group plc (“JPJ”) and subsequently renamed Gamesys. In connection with the JPJ acquisition, £10.0 million of the cash consideration was deferred and payable (plus interest) to GHL’s majority shareholders 30 months after closing. We recorded deferred consideration of $14.9 million and $15.1 million within current liabilities of the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively. Of such amount, approximately $7.4 million was payable to related parties as former majority shareholders. We paid the deferred consideration in April 2022. 55