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 completed 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 sports betting and iGaming and the highly competitive and rapidly changing aspects of our businesses generally; • 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, 2022 as filed with the SEC on March 1, 2023 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. 39 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, sportsbook and free-to-play (“F2P”) games. As of March 31, 2023, we own and manage 15 land-based casinos and one horse racetrack in ten states across the United States (“US”) operating under the Bally’s brand. Our land-based casino operations include approximately 14,700 slot machines, 500 table games and 5,300 hotel rooms, along with various restaurants, entertainment venues and other amenities. In 2021, we acquired London-based Gamesys Group Ltd. (“Gamesys”) to expand 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 revenues are primarily generated by these gaming and entertainment offerings. We own and operate our proprietary software and technology stack, which is 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 and we will continue to actively focus resources in markets that we believe will regulate iGaming. 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. We continue to make progress on the integration of our acquired assets and deploying capital on our strategic growth projects. These steps have positioned us as a prominent, full-service, vertically integrated iGaming company, with physical casinos and online gaming solutions united under a single, leading brand. Operating Structure Our business is organized into three reportable segments: (i) Casinos & Resorts, (ii) North America Interactive, and (iii) International Interactive. Casinos & Resorts - includes our 15 land-based casino properties and one horse racetrack: Property Name Location Bally’s Atlantic City Casino Resort (“Bally’s Atlantic City”) Atlantic City, New Jersey Bally’s Black Hawk (1) Black Hawk, Colorado Bally’s Dover Casino Resort (“Bally’s Dover”) Dover, Delaware Bally’s Evansville Casino & Hotel (“Bally’s Evansville”) Evansville, Indiana Bally’s Kansas City Casino (“Bally’s Kansas City”) Kansas City, Missouri 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 Shreveport Casino & Hotel (“Bally’s Shreveport”) Shreveport, Louisiana Bally’s Tiverton Casino & Hotel (“Bally’s Tiverton”) Tiverton, Rhode Island Bally’s Twin River Lincoln Casino Resort (“Bally’s Twin River”) Lincoln, Rhode Island Bally’s Vicksburg Casino (“Bally’s Vicksburg”) Vicksburg, Mississippi Hard Rock Hotel & Casino Biloxi (“Hard Rock Biloxi”) Biloxi, Mississippi Tropicana Las Vegas Casino and Resort (“Tropicana Las Vegas”) Las Vegas, Nevada Bally’s Arapahoe Park Aurora, Colorado __________________________________ (1) Consists of three casino properties: Bally’s Black Hawk North Casino, Bally’s Black Hawk West Casino and Bally’s Black Hawk East Casino. 40 North America Interactive - includes the following North America businesses: • Bally’s Interactive, primarily a business-to-consumer (“B2C”) online iCasino operator; and • Consumer facing service and marketing engines, including SportCaller, a B2B and F2P game provider for sports betting companies; Live at the Bike, an online subscription streaming service featuring livestream and on-demand poker videos and podcasts; and the Association of Volleyball Professionals (“AVP”), a professional beach volleyball organization and host of the longest-running domestic beach volleyball tour. The North America Interactive reportable segment also includes the North American operations of Gamesys, a B2C iCasino operator. International Interactive - includes Gamesys. Refer to Note 19 “ Segment Reporting ” to our condensed consolidated financial statements for additional information on our segment reporting structure. 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, (i) restrict the acquisition of stock and other financial interests in us, (ii) relate to the licensing and composition of members of our management and Board of Directors (the “Board”), (iii) prohibit certain competitive activities and related-party transactions and (iv) 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 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. The June 2021 legislation authorized Bally’s Twin River to become a licensed technology provider, which it did on July 1, 2021. As a licensed Technology Provider, Bally’s Twin River was entitled to an additional share of net terminal income on Video Lottery Terminals (“VLTs”) which they owned or leased. This June 2021 legislation also authorized a joint venture between Bally’s and International Gaming Technology PLC (“IGT”) to become a licensed technology provider and supply the State of Rhode Island with all VLTs at both Bally’s Twin River and Bally’s Tiverton for a 20.5-year period starting January 1, 2023. The joint venture was organized as the Rhode Island VLT Company, LLC, with IGT owning 60% of the membership interests and Bally’s or its affiliates owning 40% of the membership interests. On December 30, 2022 Bally’s Twin River and Bally’s Tiverton purchased additional machines directly from IGT to effectively own 40% of the machines. On January 1, 2023 Bally’s Twin River and Bally’s Tiverton contributed all of their machines to Rhode Island VLT Company, LLC in return for an aggregate 40% membership interest, and IGT contributed all of their machines at Bally’s Twin River and Bally’s Tiverton to the Rhode Island VLT Company, LLC in return for a 60% membership interest. Macroeconomic and Other Factors Our business is subject to risks caused by global economic challenges, including those caused by the COVID-19 pandemic, the impact of the war in Ukraine, rising inflation, rising interest rates and supply-chain disruptions, that can cause economic uncertainty and volatility. These challenges can negatively impact discretionary consumer spending and could result in a reduction in visitors to our properties, including those that stay in our hotels, or discretionary spending by our customers on entertainment and leisure activities. In addition, inflation generally affects our business by increasing our cost of labor. In periods of sustained inflation, it may be difficult to effectively control such increases to our costs and retain key personnel. 41 Key Performance Indicators The key performance indicator used in managing our business is Adjusted EBITDA, a non-GAAP measure. 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 and other transaction related costs, 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 more fulsome 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. 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 for our Casinos & Resorts segment plus rent expense associated with triple net operating leases. Adjusted EBITDAR is an additional metric 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 used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) financial analysts refer to Adjusted EBITDAR when 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 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. Beginning in the third quarter ended September 30, 2022, we revised our calculation of Adjusted EBITDA to exclude adjustments for launch costs and preopening expenses. The tables below within “Adjusted EBITDA and Adjusted EBITDAR by Segment” have been revised to reflect this new presentation for applicable periods. First Quarter 2023 Results The following table presents, for the periods indicated, certain revenue and income items: Three Months Ended March 31, (in millions) 2023 2022 Total revenue $ 598.7 $ 548.3 Income from operations 376.7 22.5 Net income 178.3 1.9 42 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, 2023 2022 Total revenue 100.0 % 100.0 % Gaming and non-gaming expenses 45.1 % 47.4 % General and administrative 42.0 % 34.1 % Gain from sale-leaseback, net (62.5) % — % Depreciation and amortization 12.5 % 14.4 % Total operating costs and expenses 37.1 % 95.9 % Income from operations 62.9 % 4.1 % Other income (expense) Interest expense, net of amounts capitalized (10.6) % (8.3) % Other non-operating income, net 0.4 % 3.6 % Total other income (expense), net (10.1) % (4.8) % Income (loss) before income taxes 52.8 % (0.7) % Provision (benefit) for income taxes 23.0 % (1.0) % Net income 29.8 % 0.3 % __________________________________ Note: Amounts in table may not subtotal due to rounding. 43 Segment Performance The following table sets forth certain financial information associated with results of operations for the three months ended March 31, 2023 and 2022. Three Months Ended March 31, (in thousands, except percentages) 2023 2022 $ Change Revenue: Gaming Casinos & Resorts $ 233,107 $ 217,805 $ 15,302 North America Interactive 16,607 6,645 9,962 International Interactive 237,181 239,252 (2,071) Total Gaming revenue 486,895 463,702 23,193 Non-gaming Casinos & Resorts 95,679 62,165 33,514 North America Interactive 7,755 8,582 (827) International Interactive 8,391 13,822 (5,431) Total Non-gaming revenue 111,825 84,569 27,256 Total revenue $ 598,720 $ 548,271 $ 50,449 Operating costs and expenses: Gaming Casinos & Resorts $ 82,423 $ 76,381 $ 6,042 North America Interactive 17,309 7,329 9,980 International Interactive 117,929 135,502 (17,573) Total Gaming expenses 217,661 219,212 (1,551) Non-gaming Casinos & Resorts 45,279 30,048 15,231 North America Interactive 2,205 1,318 887 International Interactive 4,860 9,271 (4,411) Total Non-gaming expenses 52,344 40,637 11,707 General and administrative Casinos & Resorts 128,117 99,587 28,530 North America Interactive 24,930 27,044 (2,114) International Interactive 57,927 35,315 22,612 Other 40,634 25,075 15,559 Total General and administrative $ 251,608 $ 187,021 $ 64,587 Margins: Gaming expenses as a percentage of Gaming revenue 45 % 47 % Non-gaming expenses as a percentage of Non-gaming revenue 47 % 48 % General and administrative as a percentage of Total revenue 42 % 34 % 44 Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Total Revenue Total revenue for the three months ended March 31, 2023 and 2022 consisted of the following (in thousands): Three Months Ended March 31, 2023 2022 $ Change % Change Gaming $ 486,895 $ 463,702 $ 23,193 5.0 % Hotel 47,332 26,935 20,397 75.7 % Food and beverage 33,608 23,988 9,620 40.1 % Retail, entertainment and other 30,885 33,646 (2,761) (8.2) % Total revenue $ 598,720 $ 548,271 $ 50,449 9.2 % Total revenue for the three months ended March 31, 2023 increased 9.2% to $598.7 million, from $548.3 million in the same period last year. We saw gaming, hotel, and food and beverage increase, through organic growth at several of our casino properties. Additionally, we saw incremental revenue from our recent acquisitions of Tropicana Las Vegas and Casino Secret (collectively “Recent Acquisitions”) of $35.1 million. Gaming and Non-gaming Expenses Gaming expenses for the three months ended March 31, 2023 decreased $1.6 million, from $219.2 million in 2022. This decrease was primarily attributable to the decrease in marketing costs directly associated with the Company’s iGaming products and services, included within gaming expenses, compared to prior year. Non-gaming expenses for the three months ended March 31, 2023 increased $11.7 million to $52.3 million from the same period last year. This increase was primarily attributable to the addition of our Tropicana Las Vegas casino property, which contributed incremental non-gaming expenses of $10.8 million during the first quarter of 2023. General and Administrative General and administrative expense for the three months ended March 31, 2023 increased $64.6 million, or 34.5%, to $251.6 million from $187.0 million in the same period last year. This increase was primarily attributable to an increase in operating lease expense of $20.8 million from prior year, $16.8 million of restructuring charges related to the Interactive business workforce reduction, increased acquisition and transaction related costs, and the inclusion of the Recent Acquisitions, which contributed incremental general and administrative expenses of $12.2 million. Depreciation and Amortization Depreciation and amortization for the three months ended March 31, 2023 was $74.6 million, a decrease of $4.3 million, or 5.5%, compared to the same period last year. We recorded impairment charges of $232.4 million in the fourth quarter of 2022, resulting in a decrease in depreciation and amortization expense during the first quarter of 2023. Income From Operations Income from operations was $376.7 million, or 62.9% as a percentage of total revenue, for the three months ended March 31, 2023 compared to $22.5 million, or 4.1%, in the same period last year. The change year-over-year was driven by the gain on sale-leaseback recorded during the current period of $374.2 million related to our Hard Rock Biloxi and Bally’s Tiverton properties, coupled with organic revenue growth a benefit from our Recent Acquisitions, offset by increased general and administrative expenses. 45 Other Income (Expense) Total other expense increased $34.4 million to $60.7 million for the first quarter of 2023 from $26.2 million in the same period last year. The increase in other expense was primarily attributable to an increase in interest expense, net of $17.6 million due to higher interest rates of our borrowings year-over-year, and an increase in the naming rights liability for performance warrants associated with our contracts with Sinclair in the first quarter of 2023, compared to a decrease in the liability in the first quarter of 2022. These were partially offset by the gain on extinguishment of debt of $4.0 million recorded in the first quarter of 2023, related to the repurchase and retirement of $15.0 million of our 2031 Senior Notes. Provision (Benefit) for Income Taxes Provision for income taxes for the three months ended March 31, 2023 was $137.7 million compared to a benefit of $5.6 million in the prior year. The effective tax rate for the first quarter of 2023 was 43.6% compared to 151.2% in the prior year. The 2023 year to date effective tax rate was higher than the US federal statutory tax rate of 21%, largely due to an increase in the valuation allowance and a tax liability for a discrete item related to the deferred gain on sale leaseback transactions in Mississippi and Rhode Island. Net Income and Earnings Per Share Net income for the three months ended March 31, 2023 was $178.3 million, or $3.24 per diluted share, compared to $1.9 million, or $0.03 per diluted share, for the three months ended March 31, 2022. Adjusted EBITDA and Adjusted EBITDAR by Segment Consolidated Adjusted EBITDA was $126.4 million for the three months ended March 31, 2023, an increase of $11.7 million, or 10.2%, from $114.7 million in the same period last year. Adjusted EBITDA for the Casinos & Resorts segment for the three months ended March 31, 2023 increased $0.1 million to $73.9 million compared to the same prior year period. Casinos & Resorts Adjusted EBITDAR was $105.1 million for the three months ended March 31, 2023, which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below. Adjusted EBITDA for the North America Interactive segment for the three months ended March 31, 2023 increased $8.8 million to $(10.6) million compared to the same prior year period, mainly due to cost-savings in connection with the execution of the restructuring plan of our interactive business. Adjusted EBITDA for the International Interactive segment for the three months ended March 31, 2023 increased $7.0 million, or 9.5%, to $80.3 million compared to the same prior year period, mainly due to optimized marketing spend and cost-savings in connection with the execution of the restructuring plan of our interactive business. 46 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 March 31, 2023 (in thousands) Casinos & Resorts North America Interactive International Interactive Other Total Net income (loss) $ 332,885 $ (17,534) $ 15,580 $ (152,595) $ 178,336 Interest expense, net of interest income 7 (1) (186) 63,444 63,264 Provision (benefit) for income taxes 74,974 (7,642) 342 70,068 137,742 Depreciation and amortization 17,190 3,475 46,062 7,834 74,561 Non-operating (income) expense (1) — (785) 203 (4,236) (4,818) Foreign exchange (gain) loss (2) 2,066 2,855 (611) 4,308 Transaction costs (2) — 1,233 5,509 15,276 22,018 Restructuring charges (3) — 5,858 9,332 1,632 16,822 Share-based compensation — — — 6,040 6,040 Gain on sale-leaseback, net (374,186) — — — (374,186) Planned business divestiture (4) — 1,864 — — 1,864 Other, net (5) (1,182) 564 604 418 404 Allocation of corporate costs 24,199 339 — (24,538) — Adjusted EBITDA $ 73,885 $ (10,563) $ 80,301 $ (17,268) $ 126,355 Rent expense associated with triple net operating leases (6) 31,238 Adjusted EBITDAR $ 105,123 __________________________________ (1) Non-operating (income) expense for the applicable periods include: (i) change in value of naming rights liabilities, (ii) gain on extinguishment of debt and, (iii) other (income) expense, net. (2) Includes financing costs incurred in connection with the Hard Rock Biloxi and Tiverton sale lease-back transactions and other acquisition and transaction related costs. (3) Restructuring costs related to the Interactive business workforce reduction, as described in Note 13. (4) Losses related to a North America Interactive business that Bally’s is marketing as held-for-sale as of March 31, 2023. (5) Other includes the following items: (i) non-routine legal expenses, net of recoveries for matters outside the normal course of business, (ii) depreciation expense and a gain on assets related to our Rhode Island joint venture, and (iii) other individually de minimis expenses. (6) Consists of the operating lease components contained within our triple net master lease dated June 4, 2021 with GLPI for the real estate assets used in the operation of Bally’s Evansville, Bally’s Dover, Bally’s Quad Cities, Bally’s Black Hawk, Hard Rock Biloxi and Bally’s Tiverton, the individual triple net lease with GLPI for the land underlying the operations of Tropicana Las Vegas, and the triple net lease assumed in connection with the acquisition of Bally’s Lake Tahoe for real estate and land underlying the operations of the Bally’s Lake Tahoe facility. Three Months Ended March 31, 2022 (in thousands) Casinos & Resorts North America Interactive International Interactive Other Total 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) — — (305) (18,992) (19,297) Foreign exchange loss — (1,595) 1,420 (7) (182) Transaction costs (2) — 289 341 5,393 6,023 Share-based compensation — — — 5,095 5,095 Other, net (3) (164) 850 — 1,495 2,181 Allocation of corporate costs 21,346 416 — (21,762) — Adjusted EBITDA $ 73,790 $ (19,325) $ 73,327 $ (13,092) $ 114,700 __________________________________ (1) Non-operating (income) expense for the applicable periods include: (i) change in value of naming rights liabilities, (ii) adjustment on bargain purchases and, (iii) other (income) expense, net. (2) Includes acquisition costs, integration costs related to our Interactive business and financing related expenses. (3) Other includes the following non-recurring items: (i) non-routine legal expenses, net of recoveries for matters outside the normal course of business, (ii) rebranding expenses in connection with Bally’s corporate name change, and (iii) other individually de minimis expenses. 47 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, 2022 for a complete list of our Critical Accounting Estimates. Recent Accounting Pronouncements Refer to Note 4 “ 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 build on our interactive/iGaming gaming business. We believe that existing cash balances, operating cash flows and availability under our Revolving Credit Facility, as explained below, will be sufficient to meet funding needs for operating, capital expenditure and debt service purposes. Cash Flows Summary Three Months Ended March 31, (in thousands) 2023 2022 Net cash (used in) provided by operating activities $ (16,112) $ 20,810 Net cash provided by (used in) investing activities 319,636 (71,955) Net cash (used in) provided by financing activities (173,568) 4,405 Effect of foreign currency on cash and cash equivalents 2,819 (4,430) Change in cash and cash equivalents and restricted cash classified as assets held for sale (1,097) — Net change in cash and cash equivalents and restricted cash 131,678 (51,170) Cash and cash equivalents and restricted cash, beginning of period 265,184 274,840 Cash and cash equivalents and restricted cash, end of period $ 396,862 $ 223,670 Operating Activities Net cash used in operating activities for the three months ended March 31, 2023 was $16.1 million, compared to net cash provided by operating activities of $20.8 million for the three months ended March 31, 2022. The increase in cash used in operating activities was primarily driven by the $374.2 million gain on sale-leaseback recorded during the first quarter of 2023 coupled with negative changes in working capital, offset by an increase in net income of $176.4 million from the prior year. Investing Activities Net cash provided by investing activities for the three months ended March 31, 2023 was $319.6 million, an increase of $391.6 million compared to net cash used in investing activities of $72.0 million for the three months ended March 31, 2022. The increase in cash provided by investing activities was driven by net proceeds of $411.0 million from the Bally’s Tiverton and Hard Rock Biloxi sale-leaseback transaction in the first quarter of 2023. 48 Financing Activities Net cash used in financing activities for the three months ended March 31, 2023 was $173.6 million compared to net cash provided by financing activities of $4.4 million for the three months ended March 31, 2022. This change was mainly attributable to the increase in repayments of long-term debt of $67.6 million, coupled with the issuance of long-term debt during the first quarter of 2022, as well as the increase in stock repurchases over the same period in prior year. Capital Return Program During the three months ended March 31, 2023, we repurchased 1,026,343 common shares for an aggregate price of $19.8 million under our previously announced capital return program. As of March 31, 2023, there was $174.8 million available for use under the capital return program, subject to limitations in our regulatory and debt agreements. We did not pay cash dividends during the three months ended March 31, 2023 or 2022, nor do we 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. 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”). During the three months ended March 31, 2023, the Company repurchased and retired $15.0 million of the Senior Notes due 2031 at a weighted average price of 70.80% of the principal. In connection with the repurchase of these Senior Notes due 2031, the Company recorded a gain on extinguishment of debt of $4.0 million. The indenture governing the Senior Notes contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, (i) incur additional indebtedness, (ii) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, (iii) enter into certain transactions with affiliates, (iv) sell or otherwise dispose of assets, (v) create or incur liens and (vi) 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 14 “ Long-Term Debt ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. 49 Operating Leases The Company is committed under various operating lease agreements for real estate and property used in operations. Minimum rent payable under operating leases was $2.37 billion as of March 31, 2023. Refer to Note 15 “ Leases ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. GLPI Leases As of March 31, 2023, the Company’s Bally’s Evansville, Bally’s Dover, Bally’s Quad Cities, Bally’s Black Hawk, Bally’s Tiverton and Hard Rock Biloxi properties were leased under the terms of a master lease agreement (the “Master Lease”) with GLPI. The Master Lease has an initial term of 15 years and includes four, five-year options to renew and requires combined minimum annual payments of $100.5 million, subject to a minimum 1% annual escalation or greater escalation dependent on CPI. The Company’s Bally’s Tiverton and Hard Rock Biloxi properties were added to the master lease on January 3, 2023, as a result of a transaction with GLP Capital, L.P., the operating partnership of GLPI, related to the land and real estate assets for a total consideration of $625.4 million. The transaction was structured as a tax-free capital contribution and a substantial portion of the proceeds were used to reduce the Company’s debt. These properties increased the minimum annual payments of the Master Lease by $48.5 million. In addition to the properties under the Master Lease, the Company leases the non-land assets of Tropicana Las Vegas, which the Company acquired during the fourth quarter of 2022, from GLPI. This lease has an initial term of 50 years (with a maximum term of 99 years with renewal options) at annual rent of $10.5 million, subject to minimum 1% annual escalation or greater escalation dependent on CPI. Financing Obligation Bally’s Chicago Operating Company, LLC, an indirect wholly-owned subsidiary of the Company, leases the land on which Bally’s Chicago will be built. The lease commenced November 18, 2022 and has a 99-year term followed by ten separate 20-year renewals at the Company’s option. As of March 31, 2023, the Company has recorded this lease as a corresponding long-term financing obligation of $200.0 million. 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 three months ended March 31, 2023, capital expenditures were $43.7 million compared to $54.5 million in the same period last year. In the first quarter of 2023, we continued our spending on maintenance and planned projects at our casino properties, making significant progress on our Bally’s Twin River and Bally’s Atlantic City properties. Our 2023 capital expenditures are expected to continue to be less than those of 2022 as we focus on generating cash flows to invest in long-term growth opportunities for the entire Bally’s portfolio. 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, ending in 2043, with Rhode Island to expand the property and add additional amenities along with other capital improvements. As a major component of this, we have constructed and opened a 14,000 square foot Korean-style spa, and a 40,000 square foot casino expansion, for a combined investment of $60 million. The spa opened in January 2023 and the expanded casino opened in April 2023. 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 2023 is estimated at approximately $20 million. 50 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, with a target completion date in the second 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. 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 iGaming/sports betting 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. 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 destination casino resort, to be named Bally’s Chicago, in downtown Chicago, Illinois that will include approximately 3,400 slot machines, 170 table games, 10 food and beverage venues, 500 hotel rooms, a 65,000 square foot entertainment and event center, a 20,000 square foot exhibition, outdoor music venue, 3,300 parking spaces and an outdoor green space. The project also provides the Company 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 be situated in the location of the current Medinah Temple and will include approximately 1,000 gaming positions and 2 food and beverage venues. The Company expects to incur approximately $70.0 million in costs in connection with the design and development of the temporary casino and to open by late summer 2023. The Company currently estimates the permanent casino construction to be completed by the end of 2026. 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. Beginning on the date of operations commencement, the Company will be required to pay annual fixed host community impact fees of $4.0 million. 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. Chicago Tribune Lease Termination - Bally’s Chicago Operating Company, LLC entered into a Lease Termination and Short Term License Agreement with Chicago Tribune Company, LLC (“Tribune”), effective March 31, 2023, which among other things provides that the Company will have possession of 777 West Chicago Avenue, Chicago Illinois 60610 (the “Permanent Chicago Site”) on or before July 5, 2024, subject to $150 million in payments by the Company to Tribune payable in full upon Tribune vacating the site on or prior to July 5, 2024 (the “Payment”). $140 million of the Payment is secured by standby letters of credit, issued by Citizens Bank. Bally’s Chicago Casino Fees - Under the Illinois Gambling Act, the Company will be responsible to pay various gaming license fees to the Illinois Gaming Board in connection with the Company’s casino operations. These fees include: (i) a $250,000 land based gaming fee to operate the casino on land prior to commencing operations, (ii) a $250,000 license fee prior to receiving an owners license and gambling operations commence, (iii) gaming position fees equal to the minimum initial fee of $30,000 per gaming position to be paid within 30 days of issuance of an owners license or Temporary Operating Permit (“TOP”), (iv) a $15 million reconciliation fee upon issuance of a TOP or an owners license, whichever is earlier, and (v) a reconciliation fee payment three years after the date operations commenced (in a temporary or permanent facility) in an amount equal to 75% of the adjusted gross receipt (“AGR”) for the most lucrative 12-month period of operations, minus the amount equal to the initial payment per gaming position paid. Other Contractual Obligations Sponsorship Commitments - The Company has entered into several sponsorship agreements with various professional sports leagues and teams, allowing the Company use of official league marks for branding and promotions, among other rights. As of March 31, 2023, obligations related to these agreements were $107.5 million, with contracts extending through June 2036. 51