What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 204 added, 109 removed, 286 unchanged (52% of the section changed)

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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.

As of June 30, 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 14,300 slot machines, 500 table games and 3,900 hotel rooms, along with various restaurants, entertainment venues and other amenities.

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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.

With the pending acquisition of Tropicana Las Vegas and the completion of construction in both Centre County, Pennsylvania and Chicago, Illinois, we will own and manage 17 land-based casinos across 11 states.

In addition, we also expanded our interactive business by:

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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

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.

Additionally, unifying Bally’s and 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 US online entertainment and sports betting markets.

Operating Structure

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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.

Our business could also be impacted if the disruptions from the COVID-19 pandemic impact construction projects, including our projects in Centre County, Pennsylvania and Chicago, Illinois, 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.

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.

The main key performance indicator used in managing our business is Adjusted EBITDA.

Adjusted EBITDA is defined as earnings for the Company, or where noted its 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.

We use Adjusted EBITDA 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 have historically used Adjusted EBITDA 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.

Also, we present Adjusted EBITDA because 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.

Adjusted EBITDA information is presented because management believes that it is a commonly used measure of performance in the gaming industry and that it is considered by many to be a key indicator of our operating results.

Adjusted EBITDAR is used outside of our financial statements solely as a valuation metric.

Adjusted EBITDAR is defined as Adjusted EBITDA (as defined above) for our Casinos & Resorts segment plus rent expense associated with triple net operating leases.

Management believes Adjusted EBITDAR is an additional metric traditionally used by analysts in valuing gaming companies subject to triple net leases since it eliminates the effects of variability in leasing methods and capital structures.

This metric is included as supplemental disclosure because (i) we believe Adjusted EBITDAR is traditionally used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) Adjusted EBITDAR is one of the metrics used by other financial analysts in valuing our business.

We believe Adjusted EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing real estate, and (ii) using a multiple of Adjusted EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from operating leases related to real estate.

Adjusted EBITDA and 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 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.

Adjusted EBITDAR should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income because it excludes the rent expense associated with our triple net operating leases with GLPI and the lease for real estate and land underlying the operations of the Bally’s Lake Tahoe property.

Second Quarter and First Six Months 2022 Results

We reported revenue and income from operations of $552.5 million and $85.3 million, respectively, for the three months ended June 30, 2022, compared to revenue and income from operations of $267.7 million and $80.5 million, respectively, for the same period last year.

We reported revenue and income from operations of $1.10 billion and $107.8 million, respectively, for the six months ended June 30, 2022, compared to revenue and income from operations of $460.0 million and $110.0 million, respectively, for the same period last year.

Our properties are at full capacity and are operating under minimal restrictions and we have seen an increase in consumer confidence, which contributed to such increases.

In addition, the increases include incremental revenues and income from our recent acquisitions.

Results of Operations

The following table presents, for the periods indicated, certain revenue and income items:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2022 2021 2022 2021

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Income from operations 85.3 80.5 107.8 110.0

Net income (loss) 1.9 (10.7)

Net income 59.5 68.9 61.4 58.2

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,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Total revenue 100.0 % 100.0 % 100.0 % 100.0 %

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Advertising, general and administrative 32.9 % 37.8 % 33.0 % 39.5 %

Goodwill and asset impairment — % 1.7 % — % 1.0 %

Gain on sale-leaseback, net (9.2) % (20.0) % (4.6) % (11.6) %

Other operating costs and expenses 2.0 % 7.1 % 1.5 % 4.8 %

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Change in value of naming rights liabilities 3.6 % 7.1 % 3.0 % (1.8) %

Gain on bargain purchases — % 9.0 % — % 5.2 %

Other, net 1.0 % (2.4) % 1.1 % (0.8) %

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) %

Total other income (expense), net (3.7) % 5.7 % (4.2) % (6.4) %

Income before income taxes 11.8 % 35.8 % 5.6 % 17.5 %

Provision for income taxes 1.0 % 10.1 % 0.0 % 4.8 %

Net income 10.8 % 25.8 % 5.6 % 12.7 %

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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.

The following table sets forth certain financial information associated with results of operations for the three and six months ended June 30, 2022 and 2021.

Non-gaming revenue includes hotel, food and beverage and retail, entertainment and other revenue.

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All amounts are before any allocation of corporate costs.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except percentages) 2022 2021 $ Change 2022 2021 $ Change

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Advertising, general and administrative as a percentage of Total revenue 33 % 38 % 33 % 40 %

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Three and Six Months Ended June 30, 2022 Compared to Three and Six Months Ended June 30, 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

Total revenue for the three and six months ended June 30, 2022 and 2021 consisted of the following (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Gaming $ 455,088 $ 207,490 $ 247,598 119.3 % $ 918,790 $ 362,768 $ 556,022 153.3 %

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Total revenue $ 552,496 $ 267,733 $ 284,763 106.4 % $ 1,100,767 $ 459,999 $ 640,768 139.3 %

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.

Revenue for the three months ended June 30, 2022 increased 106.4%, or $284.8 million, to $552.5 million, from $267.7 million in the same period last year.

Revenue for the six months ended June 30, 2022 increased 139.3%, or $640.8 million, to $1.10 billion, from $460.0 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 prior year periods resulting from developments in the COVID-19 pandemic and an increase in consumer confidence.

Incremental revenues from our acquisitions that closed in 2021, which included Bally’s Evansville, Bally’s Lake Tahoe, Bally’s Quad Cities, Gamesys, and several of the North America Interactive acquisitions (collectively, the “2021 Acquisitions”), drove the increase in revenue year over year, contributing $281.8 million and $613.1 million to total revenue in the three and six months ended June 30, 2022, respectively.

Refer to Note 5 “ Acquisitions ” for further information on our recent acquisitions.

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.

In the three months ended June 30, 2022, we recorded total operating costs and expenses of $467.2 million, up $280.0 million, or 149.6%, from $187.2 million in the same period last year.

Total operating costs and expenses for the six months ended June 30, 2022 increased $642.9 million, or 183.7%, to $992.9 million, from $350.0 million in the same period 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.

We expect our total operating costs and expenses to continue 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.

Gaming and racing expenses for the three months ended June 30, 2022 increased $140.7 million, or 222.1%, to $204.1 million from $63.4 million in the prior year comparable period and increased $312.7 million, or 282.7%, to $423.3 million for the six months ended June 30, 2022 from $110.6 million in the prior year comparable period.

These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $137.1 million and $299.6 million, during the three and six months ended June 30, 2022, respectively.

Non-gaming expenses for the three months ended June 30, 2022 increased $19.9 million, or 74.8%, to $46.4 million from $26.5 million in the same period last year.

Non-gaming expenses for the six months ended June 30, 2022 increased $41.3 million, or 90.5%, to $87.0 million from $45.7 million in the same period last year.

These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $14.5 million and $32.9 million, during the three and six months ended June 30, 2022, respectively.

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.

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.

Advertising, general and administrative expenses for the three months ended June 30, 2022 increased $80.5 million, or 79.5%, to $181.7 million from $101.2 million in the same period last year.

Advertising, general and administrative expenses for the six months ended June 30, 2022 increased $181.6 million, or 99.9%, to $363.3 million from $181.7 million in the same period last year.

These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $69.1 million and $155.0 million, during the three and six months ended June 30, 2022, respectively.

Acquisition, integration and restructuring expense

We incurred $10.1 million and $15.4 million of acquisition, integration and restructuring expenses during the three and six months ended June 30, 2022, respectively, compared to $18.4 million and $30.7 million in the prior year three and six month periods, respectively.

This decrease in expense for the current year was driven mainly by costs incurred for the acquisition of Gamesys in the prior year, $7.3 million and $13.6 million for the second quarter and first half of 2021, respectively.

Refer to Note 11 “ Acquisition, Integration and Restructuring ” for further information.

Other operating (income), costs and expenses

During the three and six months ended June 30, 2021, the Company recorded Gain from insurance recoveries, net of losses of $0.6 million and $11.3 million, respectively, 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, the Company recorded rebranding expenses of $0.2 million and $0.4 million during the three months ended June 30, 2022 and 2021, respectively, and $0.5 million and $1.3 million during the six months ended June 30, 2022 and 2021, respectively.

During the second quarter of 2022, we sold our Bally’s Black Hawk and Bally’s Quad Cities properties to GLPI and recorded a gain on sale-leaseback of $50.8 million.

During the second quarter of 2021, we sold our Dover Downs property to GLPI and recorded a gain on sale-leaseback of $53.4 million and we also recorded asset impairment charges of $4.7 million related to the Dover Downs and Bally’s Black Hawk tradenames in connection with our rebranding.

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.

Depreciation and amortization for the three months ended June 30, 2022 was $74.8 million, an increase of $49.1 million, and $153.7 million for the six months ended June 30, 2022, an increase of $115.2 million, each 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 of $44.3 million and $90.4 million in the three and six months ended June 30, 2022, respectively.

Income from operations

Income from operations was $85.3 million for the three months ended June 30, 2022, compared to $80.5 million in the comparable period in 2021.

Income from operations was $107.8 million for the six months ended June 30, 2022 compared to $110.0 million in 2021.

These changes year-over-year were 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.

Total other expense for the three months ended June 30, 2022 was $20.4 million, compared to other income of $15.4 million in the same period last year.

This change was driven mainly by the bargain purchase gains of $24.1 million recorded in the second quarter of 2021 related to the acquisitions of Bally’s Lake Tahoe and Bally’s Evansville.

Total other expense for the six months ended June 30, 2022 increased $17.0 million to $46.6 million compared to $29.6 million in the same period last year.

During the first six months of 2022, in addition to the bargain purchase gains described above, there was an increase in interest expense of $49.2 million due to increased borrowings and higher interest rates year-over-year, offset by the increase in income recorded of $41.7 million for the change in fair value of the naming rights liability associated with our contracts with Sinclair.

Provision (benefit) for income taxes

Provision for income taxes for the three months ended June 30, 2022 was $5.4 million compared to $27.0 million for the three months ended June 30, 2021.

The effective tax rate for the quarter was 8.4% compared to 28.1% for the three months ended June 30, 2021.

The benefit for income taxes for the six months ended June 30, 2022 was $0.1 million compared to a provision of $22.2 million for the six months ended June 30, 2021.

The effective tax rate for the six months ended June 30, 2022 was (0.2)% compared to 27.6% for the six months ended June 30, 2021.

The decrease in the year to date provision for income taxes in 2022 is largely due to a tax benefit recorded in foreign jurisdictions during the quarter offset by discrete tax items related to gain on sale leaseback transactions.

Net income (loss) and earnings per share

Net income for the three months ended June 30, 2022 was $59.5 million, or $0.98 per diluted share, a decrease of $9.4 million, or 13.7%, from net income of $68.9 million, or $1.40 per diluted share, in the same period last year.

As a percentage of revenue, net income decreased from 25.8% for the three months ended June 30, 2021 to 10.8% for the three months ended June 30, 2022.

Net income for the six months ended June 30, 2022 was $61.4 million, an increase of $3.2 million, or 5.4%, from $58.2 million, or $1.37 per diluted share, in the same period last year.

As a percentage of revenue, net income increased to 5.6% for the six months ended June 30, 2022 from 12.7% for the six months ended June 30, 2021.

These changes were impacted by the factors noted above.

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.

Consolidated Adjusted EBITDA was $141.2 million for the three months ended June 30, 2022, up $58.4 million, or 70.5%, from $82.8 million in the same period last year.

Consolidated Adjusted EBITDA was $256.2 million for the six months ended June 30, 2022, up $121.5 million, or 90.2%, from $134.7 million in the same period last year.

Adjusted EBITDA for the Casinos & Resorts segment for the three months ended June 30, 2022 decreased $3.8 million, or 4.1%, to $88.0 million and increased $12.4 million, or 8.3%, to $161.8 million for the six months ended June 30, 2022, each compared to the same prior year periods.

Casinos & Resorts Adjusted EBITDAR was $99.5 million and $184.7 million in the three and six months ended June 30, 2022, respectively, 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.

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

Adjusted EBITDA for the North America Interactive segment for the three months ended June 30, 2022 decreased $17.1 million to $(17.0) million and decreased $37.8 million to $(36.3) million for the six months ended June 30, 2022, each compared to the same prior year periods, mainly due to increased operating costs.

Adjusted EBITDA for the International Interactive segment for the three and six months ended June 30, 2022 was $82.6 million and $155.9 million, respectively, 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, as derived from our financial statements (in thousands):

Three Months Ended June 30, 2022

Casinos & Resorts North America Interactive International Interactive Other Total

Revenue $ 279,970 $ 15,227 $ 253,074 $ — $ 548,271

Net income (loss) $ 70,775 $ (24,766) $ 42,504 $ (29,012) $ 59,501

5 unchanged sentences

Acquisition, integration and restructuring — 487 884 8,741 10,112

Strategic initiatives (2)

3,018 — — 2,390 5,408

Launch costs (3)

— 6,800 — 282 7,082

Share-based compensation — — — 6,322 6,322

Gain on sale-leaseback, net (50,766) — — — (50,766)

Other, net (4)

5 unchanged sentences

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(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.

Three Months Ended March 31, 2021

(1) Non-operating (income) expense for the applicable periods include:

(i) change in value of naming rights liabilities, (ii) gain (adjustment) on bargain purchases, and (iii) other (income) expense, net.

(2) Includes costs incurred to address the Standard General takeover bid, the recent tender offer process and rent expense related to Bally's Black Hawk and Quad Cities properties, as the Company recently entered into sale lease-back transactions associated with these properties to finance the pending Tropicana Las Vegas property acquisition.

(3) Includes upfront and ramp up costs related to the launch of interactive businesses in new jurisdictions prior to full operational commencement.

(4) Other includes the following items:

(i) non-routine legal expenses, net of recoveries for matters outside the normal course of business ($2.0 million), and (ii) and other individually de minimis expenses.

(5) Rent expense associated with triple net leases for our Bally’s Lake Tahoe, Bally’s Evansville and Bally’s Dover properties.

Three Months Ended June 30, 2021

Casinos & Resorts North America Interactive Other Total

Revenue $ 189,433 $ 2,833 $ — $ 192,266

Net income (loss) $ 79,644 $ (3,230) $ (7,472) $ 68,942

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Acquisition, integration and restructuring — — 18,402 18,402

Strategic initiatives (2)

Launch costs (3)

Share-based compensation — — 3,901 3,901

Other, net (2)

Gain on sale-leaseback (53,425) — — (53,425)

4,018 — 2,670 6,688

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(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.

(i) change in value of naming rights liabilities, (ii) gain on bargain purchases and (iii) other, net.

(2) Includes costs incurred related to the amended credit agreement.

(3) Includes upfront and ramp up costs related to the launch of interactive businesses in new jurisdictions prior to full operational commencement.

(4) Other includes the following items:

(i) asset impairment charges of $4.7 million related to the Dover Downs and Bally’s Black Hawk tradenames in connection with our rebranding, (ii) $2.0 million of professional fees and other costs incurred to establish the partnership with Sinclair and acquire Bally Interactive, (iii) storm related gains of $0.6 million related to insurance recoveries received due to the effects of Hurricane Zeta on the Company’s Hard Rock Biloxi property, (iv) rebranding expenses of $0.4 million in connection with Bally’s corporate name change, and (v) other individually de minimis expenses.

Six Months Ended June 30, 2022

Casinos & Resorts North America Interactive International Interactive Other Total

Net income (loss) $ 98,798 $ (50,139) $ 71,312 $ (58,581) $ 61,390

Interest expense, net of interest income (6) (3) 36 91,486 91,513

Provision (benefit) for income taxes 36,457 (8,642) (8,566) (19,390) (141)

Depreciation and amortization 30,110 16,247 90,375 16,922 153,654

Non-operating (income) expense (1)

— (3,136) 1,550 (43,337) (44,923)

Acquisition, integration and restructuring — 776 1,225 13,391 15,392

Strategic initiatives (2)

3,018 — — 3,133 6,151

Launch costs (3)

— 7,650 — 535 8,185

Share-based compensation — — — 11,417 11,417

Gain on sale-leaseback (50,766) — — — (50,766)

2,416 — — 1,889 4,305

Allocation of corporate costs 41,764 961 7 (42,732) —

Adjusted EBITDA $ 161,791 $ (36,286) $ 155,939 $ (25,267) $ 256,177

Rent expense associated with triple net operating leases (5)

Adjusted EBITDAR $ 184,673

__________________________________

(1) Non-operating (income) expense for the applicable periods include:

(i) change in value of naming rights liabilities, (ii) gain (adjustment) on bargain purchases, and (iii) other (income) expense, net.

(2)Includes costs incurred to address the Standard General takeover bid, the recent tender offer process and rent expense related to Bally's Black Hawk and Quad Cities properties, as the Company recently entered into sale lease-back transactions associated with these properties to finance the pending Tropicana Las Vegas property acquisition.

(3) Includes upfront and ramp up costs related to the launch of interactive businesses in new jurisdictions prior to full operational commencement.

(4) Other includes the following items:

(i) $2.1 million of non-routine legal expenses, net of recoveries for matters outside the normal course of business, (ii) storm related gains of $0.2 million related to insurance recoveries received due to the effects of Hurricane Zeta on the Company’s Hard Rock Biloxi property, (iii) rebranding expenses of $0.5 million in connection with Bally’s corporate name change, and (iv) other individually de minimis expenses.

(5) Rent expense associated with triple net leases for our Bally’s Lake Tahoe, Bally’s Evansville and Bally’s Dover properties.

Six Months Ended June 30, 2021

Casinos & Resorts North America Interactive Other Total

Net income (loss) $ 112,745 $ (2,771) $ (51,737) $ 58,237

Interest expense, net of interest income 19 (2) 41,556 41,573

Benefit for income taxes 41,450 (605) (18,694) 22,151

Depreciation and amortization 25,061 4,417 9,025 38,503

Non-operating (income) expense (1)

— (35) (11,920) (11,955)

Acquisition, integration and restructuring — — 30,660 30,660

Strategic initiatives (2)

Launch costs (3)

— — 1,340 1,340

Share-based compensation — — 8,384 8,384

Gain on sale-leaseback (53,425) — — (53,425)

(6,629) — 5,088 (1,541)

Allocation of corporate costs 30,205 486 (30,691) —

Adjusted EBITDA $ 149,426 $ 1,490 $ (16,219) $ 134,697

__________________________________

(1) Non-operating income (expense) includes:

(i) change in value of naming rights liabilities, (ii) gain on bargain purchases and (iii) other, net.

(2) Includes costs incurred related to the amended credit agreement.

(3) Includes upfront and ramp up costs related to the launch of interactive businesses in new jurisdictions prior to full operational commencement.

(4) Other includes the following items:

(i) storm related gains of $11.3 million related to insurance recoveries received due to the effects of Hurricane Zeta on the Company’s Hard Rock Biloxi property, (ii) asset impairment charges of $4.7 million related to the Dover Downs and Bally’s Black Hawk tradenames in connection with our rebranding (iii) $3.4 million of professional fees and other costs incurred to establish the partnership with Sinclair and acquire Bally Interactive, (iv) rebranding expenses of $1.3 million in connection with Bally’s corporate name change, (v) $0.4 million of expenses incurred to establish the partnership with Sinclair, and (vi) other individually de minimis expenses.

Critical Accounting Estimates

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Cash Flows Summary

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2022 2021

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Net cash used in investing activities (55,834) (235,727)

Net cash provided by financing activities 4,405 31,861

Net cash (used in) provided by financing activities (140,790) 948,147

Effect of foreign currency on cash and cash equivalents (11,404) 483

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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.

Net cash provided by operating activities for the six months ended June 30, 2022 was $164.5 million, compared to $34.2 million for the six months ended June 30, 2021.

The increase in cash provided by operating activities was primarily driven by the $115.2 million increase in depreciation and amortization expense, mainly attributable to the increased amortization of intangible assets acquired through our acquisitions of Gamesys in the second half of 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.

Net cash used in investing activities for the six months ended June 30, 2022 was $55.8 million, a decrease of $179.9 million compared to $235.7 million for the six months ended June 30, 2021.

The change was primarily driven by a $332.0 million reduction in cash paid for acquisitions, offset by an $80.3 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, $51.6 million for the acquisition of gaming licenses, primarily for Bally’s Chicago, and $31.5 million paid for internally developed software.

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.

Net cash used in financing activities for the six months ended June 30, 2022 was $140.8 million compared to net cash provided by financing activities of $948.1 million for the six months ended June 30, 2021.

This change was mainly attributable to cash proceeds related to the equity issuances of $667.9 million received during the second quarter of 2021 and the increase in repayments of long-term debt of $166.9 million year-over-year.

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.

During the six months ended June 30, 2022, we repurchased 350,616 common shares for an aggregate price of $13.3 million under our previously announced capital return program.

As of June 30, 2022, there was $334.6 million available for use under the capital return program.

On July 27, 2022, we completed a tender offer and repurchased approximately 4.7 million shares of our common stock for cash at a price of $22.00 per share for an aggregate purchase price of $103.3 million.

The Offer was funded with cash on hand and through borrowings on the Company’s revolving credit facility.

In connection with the COVID-19 pandemic, we ceased paying dividends.

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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.

Refer to Note 12 “ Long-Term Debt ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

GLPI Master Lease

Our Master Lease is accounted for as an operating lease and was $380.6 million as of March 31, 2022.

Our Master Lease is accounted for as an operating lease and was $479.7 million as of June 30, 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”).

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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.

We also expect to finance our proposed agreement to acquire the Tropicana Las Vegas for $150 million through sale-leaseback transactions with GLPI.

The acquisition of Bally’s Evansville and commencement of the Master Lease occurred on June 3, 2021.

On April 1, 2022, the Company completed the sale of its Bally’s Quad Cities and Bally’s Black Hawk properties to GLPI for $150.0 million, subsequently leasing the properties back under the above mentioned Master Lease for combined minimum annual payments of $12.0 million, subject to escalation.

During the second quarter of 2022, the Company recorded a net gain of $50.8 million, representing the difference in the transaction price and the derecognition of assets, and recorded lease liabilities and corresponding right of use assets of $82.7 million and $21.8 million, respectively.

On June 28, 2022, the Company announced that it had entered into a binding term sheet with GLP Capital, L.P., the operating partnership of GLPI (“GLP”), to acquire certain real property assets of Bally’s, subject to customary regulatory approvals, with Bally’s Twin River also subject to lender consent.

GLP will acquire the real property assets of Hard Rock Biloxi along with Bally’s Tiverton for total consideration of $635 million and GLP will also have the option, subject to receipt of required consents, to acquire the real property assets of Bally’s Twin River prior to December 31, 2024 for a purchase price of $771 million.

Pursuant to the terms of the transaction, the Company will immediately lease back both properties and continue to own, control and manage all the gaming operations of the facilities on an uninterrupted basis.

Both properties are expected to be added to the Master Lease with GLPI.

We also expect to finance our proposed agreement to acquire the Tropicana Las Vegas for $150 million through the sale-leaseback transactions with GLPI.

Operating leases

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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.

Minimum rent payable under operating leases was $1.05 billion as of June 30, 2022.

Refer to Note 13 “ Leases ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

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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.

For the six months ended June 30, 2022, capital expenditures were $116.1 million compared to $35.8 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:

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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.

Construction of the casino is expected to begin in the first half of 2023 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.

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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.

Bally’s Chicago - On June 9, 2022, a wholly-owned indirect subsidiary of the Company, Bally’s Chicago Operating Company, LLC (the “Developer”), signed a host community agreement with the City of Chicago to develop a $1.7 billion destination casino resort, to be names Bally’s Chicago, in downtown Chicago, Illinois.

Among other features and amenities, Bally's Chicago will include 3,400 slots, 170 table games, 10 food and beverage venues, a 500-room hotel tower with rooftop bar, a 3,000 seat, 65,000 square foot entertainment center, a 20,000 square foot exhibition and an outdoor green space including an expansive public riverwalk with a water taxi stop.

The project also provides the Developer with the exclusive right to operate a temporary casino for up to three years while the permanent casino resort is constructed.

The temporary casino is expected to open by the end of the first half of 2023, subject to regulatory approval and other customary conditions.

In connection with the entry into the host community agreement with the City of Chicago, the Company made a one-time up-front payment to the City of Chicago equal to $40.0 million, and the Developer will be required to make ongoing payments based on certain performance and time-based thresholds detailed in the host community agreement.

Additionally, in connection with the host community agreement, the Company provided the City of Chicago with a performance guaranty whereby the Company agreed to have and maintain available financial resources in an amount reasonably sufficient to allow the Developer to complete its obligations under the host community agreement.

In addition, upon notice from the City of Chicago that the Developer has failed to perform various obligations under the host community agreement, the Company has indemnified the City of Chicago against any and all liability, claim or reasonable and documented expense the City of Chicago may suffer or incur by reason of any nonperformance of any of the Developer’s obligations.

Other Contractual Obligations

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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.

We recorded deferred consideration of $15.1 million within current liabilities of the condensed consolidated balance sheets as of December 31, 2021.

Of such amount, approximately $7.4 million was payable to related parties as former majority shareholders.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis