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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-03 · 136 added, 194 removed, 252 unchanged (57% of the section changed)

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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 June 30, 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.

As of September 30, 2023, we own and manage 16 land-based casinos in 10 states across the United States (“US”), one golf course in New York, and one horse racetrack in Colorado operating under the Bally’s brand.

Our land-based casino operations include approximately 15,400 slot machines, 600 table games and 5,300 hotel rooms, along with various restaurants, entertainment venues and other amenities.

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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:

(i) Casinos & Resorts, (ii) International Interactive, and (iii) North America Interactive.

Casinos & Resorts - includes our 16 land-based casino properties, one horse racetrack and one golf course:

Property Name Location

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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 Chicago Casino (“Bally’s Chicago”) (3)

Chicago, Illinois

Bally’s Dover Casino Resort (“Bally’s Dover”) (2)

Dover, Delaware

Bally’s Evansville Casino & Hotel (“Bally’s Evansville”) (2)

Evansville, Indiana

Bally’s Kansas City Casino (“Bally’s Kansas City”)

1 unchanged sentence

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 Quad Cities Casino & Hotel (“Bally’s Quad Cities”) (2)

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 Tiverton Casino & Hotel (“Bally’s Tiverton”) (2)

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

Hard Rock Hotel & Casino Biloxi (“Hard Rock Biloxi”) (2)

Biloxi, Mississippi

Tropicana Las Vegas Casino and Resort (“Tropicana Las Vegas”) (2)

Las Vegas, Nevada

Bally’s Arapahoe Park Aurora, Colorado

Bally’s Golf Links at Ferry Point (“Bally’s Golf Links”) Bronx, New York

__________________________________

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Bally’s Black Hawk North Casino, Bally’s Black Hawk West Casino and Bally’s Black Hawk East Casino.

(2) Properties leased from Gaming and Leisure Properties, Inc.

Refer to Note 16 “ Leases ” for further information.

(3) Temporary casino facility while permanent casino resort is constructed.

International Interactive - includes Gamesys, a business-to-consumer (“B2C”) iCasino operator.

North America Interactive - includes the following North America businesses:

• Bally’s Interactive, primarily a business-to-consumer (“B2C”) online iCasino operator;

• Bally’s Interactive, primarily a B2C online iCasino operator;

• 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.

and an investment in 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.

Refer to Note 20 “ Segment Reporting ” to our condensed consolidated financial statements for additional information on our segment reporting structure.

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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.

The key performance indicator used in managing our business is consolidated Adjusted EBITDA and segment Adjusted EBITDAR which are non-GAAP measures.

Adjusted EBITDA is defined as earnings, or loss, 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) expense, 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.

Segment Adjusted EBITDAR is Adjusted EBITDA (as defined above) for the Company’s reportable segments, plus rent expense associated with triple net operating leases with GLPI for the real estate assets used in the operation of the Bally’s casinos and the assumption of the lease for real estate and land underlying the operations of the Bally’s Lake Tahoe property.

We use consolidated Adjusted EBITDA and segment Adjusted EBITDAR to analyze the performance of our business and they are used as determining factors for performance based compensation for members of our management team.

We use consolidated Adjusted EBITDA and segment 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 more fulsome understanding of our core operating results and as a means to evaluate period-to-period performance.

Also, we present consolidated Adjusted EBITDA and segment Adjusted EBITDAR because they are used by some investors and creditors as indicators 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.

Second Quarter 2023 and First Six Months 2023 Results

Consolidated Adjusted EBITDA and segment Adjusted EBITDAR information is presented because management believes that they are commonly used measures of performance in the gaming industry and that they are considered by many to be key indicators of our operating results.

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

Consolidated Adjusted EBITDAR is defined as consolidated Adjusted EBITDA plus rent expense associated with triple net operating leases.

Consolidated 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 Consolidated Adjusted EBITDAR is used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) financial analysts refer to Consolidated Adjusted EBITDAR when valuing our business.

We believe Consolidated 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 Consolidated 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.

Consolidated Adjusted EBITDA and segment Adjusted EBITDAR should not be construed as alternatives to net income, the most directly comparable GAAP measure, as indicators of our performance.

In addition, consolidated Adjusted EBITDA and segment 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.

Consolidated 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.

Third Quarter 2023 and First Nine Months 2023 Results

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

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

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2023 2022 2023 2022

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The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Total other income (expense), net (8.7) % (9.0) % (9.6) % (5.9) %

Income (loss) before income taxes (9.0) % 11.8 % 21.7 % 5.6 %

Provision (benefit) for income taxes (4.7) % 1.0 % 9.1 % 0.0 %

(Loss) income before income taxes (2.8) % 0.3 % 13.3 % 3.8 %

Provision for income taxes 6.9 % 0.2 % 8.3 % 0.1 %

Net (loss) income (9.8) % 0.1 % 4.9 % 3.7 %

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Segment Performance

The following table sets forth certain financial information associated with results of operations for the three and six months ended June 30, 2023 and 2022.

The following table sets forth certain financial information associated with results of operations for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2023 2022 $ Change 2023 2022 $ Change

Casinos & Resorts $ 245,687 $ 237,951 $ 7,736 $ 709,812 $ 681,472 $ 28,340

North America Interactive 19,111 7,868 11,243 35,718 14,513 21,205

International Interactive 240,577 217,215 23,362 720,925 677,971 42,954

North America Interactive 22,631 10,567 12,064 58,349 25,080 33,269

Total Gaming revenue 508,895 465,733 43,162 1,489,086 1,384,523 104,563

Casinos & Resorts 113,339 90,589 22,750 311,162 226,913 84,249

North America Interactive 6,159 10,182 (4,023) 13,914 18,764 (4,850)

International Interactive 3,307 10,364 (7,057) 16,305 37,253 (20,948)

North America Interactive 6,936 11,563 (4,627) 20,850 30,327 (9,477)

Total Non-gaming revenue 123,582 112,516 11,066 348,317 294,493 53,824

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Casinos & Resorts $ 84,715 $ 78,229 $ 6,486 $ 247,065 $ 233,324 $ 13,741

North America Interactive 20,463 14,472 5,991 37,772 21,801 15,971

International Interactive 115,751 106,505 9,246 352,229 352,872 (643)

North America Interactive 28,665 12,462 16,203 66,437 34,263 32,174

Total Gaming expenses 229,131 197,196 31,935 665,731 620,459 45,272

Casinos & Resorts 52,011 37,691 14,320 144,556 102,354 42,202

North America Interactive 2,960 3,028 (68) 5,165 4,346 819

International Interactive 2,483 8,024 (5,541) 9,393 26,036 (16,643)

North America Interactive 3,547 7,779 (4,232) 8,712 12,125 (3,413)

Total Non-gaming expenses 58,041 53,494 4,547 162,661 140,515 22,146

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Casinos & Resorts 133,620 108,078 25,542 391,620 311,808 79,812

North America Interactive 35,467 24,798 10,669 60,397 51,842 8,555

International Interactive 40,584 39,450 1,134 146,981 108,002 38,979

North America Interactive 16,470 22,063 (5,593) 76,867 73,905 2,962

Other 39,908 30,453 9,455 116,679 86,085 30,594

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General and administrative as a percentage of Total revenue 36 % 35 % 40 % 35 %

Three and Six Months Ended June 30, 2023 Compared to Three and Six Months Ended June 30, 2022

Three and Nine Months Ended September 30, 2023 Compared to Three and Nine Months Ended September 30, 2022

Total Revenue

Total revenue for the three and six months ended June 30, 2023 and 2022 consisted of the following (in thousands):

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

Total revenue for the three and nine months ended September 30, 2023 and 2022 consisted of the following (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 $ Change % Change 2023 2022 $ Change % Change

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Total revenue $ 632,477 $ 578,249 $ 54,228 9.4 % $ 1,837,403 $ 1,679,016 $ 158,387 9.4 %

Revenue for the three months ended June 30, 2023 increased $53.7 million, to $606.2 million, from $552.5 million in the same period last year.

Revenue for the six months ended June 30, 2023 increased $104.2 million, to $1.20 billion, from $1.10 billion 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 $35.3 million and $70.5 million for the three and six months ended June 30, 2023, respectively.

Revenue for the three months ended September 30, 2023 increased $54.2 million, to $632.5 million, from $578.2 million in the same period last year.

Revenue for the nine months ended September 30, 2023 increased $158.4 million, to $1.84 billion, from $1.68 billion in the same period last year.

We saw gaming, hotel, and food and beverage increase, through organic growth throughout the year 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”), as well as our Bally’s Chicago property which commenced operations on September 9, 2023.

Gaming and Non-gaming Expenses

Gaming expenses for the three months ended June 30, 2023 increased $14.9 million to $218.9 million from $204.1 million in the prior year comparable period and increased $13.3 million to $436.6 million for the six months ended June 30, 2023 from the prior year comparable period.

These increases were primarily attributable to the inclusion of expenses from our Recent Acquisitions which contributed, in the aggregate, $8.7 million and $17.5 million, during the three and six months ended June 30, 2023, respectively.

Non-gaming expenses for the three months ended June 30, 2023 increased $5.9 million from $46.4 million in the same period last year and for the six months ended June 30, 2023 increased $17.6 million from $87.0 million compared to the same period last year.

These increases were primarily attributable to the addition of our Tropicana Las Vegas casino property, which contributed incremental non-gaming expenses of $11.0 million and $21.7 million, during the three and six months ended June 30, 2023, respectively.

Gaming expenses for the three months ended September 30, 2023 increased $31.9 million to $229.1 million from $197.2 million in the prior year comparable period and increased $45.3 million to $665.7 million for the nine months ended September 30, 2023 from the prior year comparable period.

These increases were primarily attributable to the inclusion of expenses from our recently opened Bally’s Chicago property and the incremental gaming expenses from our Recent Acquisitions.

Non-gaming expenses for the three months ended September 30, 2023 increased $4.5 million from $53.5 million in the same period last year and for the nine months ended September 30, 2023 increased $22.1 million from $140.5 million compared to the same period last year.

These increases were primarily attributable to our Tropicana Las Vegas casino property, which contributed incremental non-gaming expenses of $32.7 million during the nine months ended September 30, 2023, partially offset by the decreased non-gaming expense across the interactive reporting segments.

General and Administrative

General and administrative expenses for the three months ended June 30, 2023 increased $57.2 million to $250.0 million from $192.7 million in the same period last year.

General and administrative expenses for the six months ended June 30, 2023 increased $121.8 million from $379.8 million in the same period last year.

General and administrative expenses for the three months ended September 30, 2023 increased $30.5 million to $230.6 million from $200.0 million in the same period last year.

General and administrative expenses for the nine months ended September 30, 2023 increased $152.3 million from $579.8 million in the same period last year.

These increases were primarily attributable to higher operating lease expenses, restructuring charges related to the Interactive business workforce reduction in the current year, increased acquisition and transaction related costs, impairment charges related to the assets held for sale, and general and administrative expenses attributable to our Recent Acquisitions.

Depreciation and Amortization

Depreciation and amortization for the three months ended June 30, 2023 was $79.2 million, an increase of $4.4 million, and $153.7 million for the six months ended June 30, 2023, an increase of $0.1 million, each compared to the same period last year.

These increases were mainly attributable to the inclusion of expenses from our Recent Acquisitions.

Depreciation and amortization for the three months ended September 30, 2023 was $77.5 million, an increase of $3.6 million, and $231.2 million for the nine months ended September 30, 2023, an increase of $3.7 million, each compared to the same period last year.

These increases were mainly attributable to the inclusion of expenses from our Recent Acquisitions, as well as the inclusion of expenses related to our various capital development projects placed into service during 2023.

Income From Operations

Income from operations was $6.0 million for the three months ended June 30, 2023, compared to $85.3 million in the comparable period in 2022.

Income from operations was $382.7 million for the six months ended June 30, 2023, compared to $107.8 million in the corresponding period in 2022.

These changes year-over-year were driven by a gain on sale-leaseback recorded during the current year related to our Hard Rock Biloxi and Bally’s Tiverton properties, organic revenue growth, benefits from our Recent Acquisitions, and offset by increased general and administrative expenses and impairment charges on assets held for sale.

Income from operations was $37.2 million for the three months ended September 30, 2023, compared to $53.7 million in the comparable period in 2022.

Income from operations was $420.0 million for the nine months ended September 30, 2023, compared to $161.5 million in the corresponding period in 2022.

These changes year-over-year were driven by a gain on sale-leaseback recorded during the current year related to our Hard Rock Biloxi and Bally’s Tiverton properties, organic revenue growth, benefits from our recently opened Bally’s Chicago property and Recent Acquisitions, and offset by increased general and administrative expenses and impairment charges on assets held for sale.

Other Income (Expense)

Total other expense increased $39.9 million to $60.3 million for the three months ended June 30, 2023 and $74.3 million to $120.9 million for the six months ended June 30, 2023, each compared to the same periods last year.

These increases in other expenses were primarily attributable to increased interest expense on our borrowings year-over-year and a decrease in gains on our naming rights liability for performance warrants associated with our contracts with Sinclair.

Total other expense increased $3.2 million to $55.1 million for the three months ended September 30, 2023 and $77.5 million to $176.0 million for the nine months ended September 30, 2023, each compared to the same periods last year.

These increases in other expenses were primarily attributable to increased interest expense on our borrowings year-over-year.

Provision (Benefit) for Income Taxes

Benefit for income taxes for the three months ended June 30, 2023 was $28.6 million compared to a provision of $5.4 million for the three months ended June 30, 2022.

The effective tax rate for the quarter was 52.8% compared to 8.4% for the three months ended June 30, 2022.

The provision for income taxes for the six months ended June 30, 2023 was $109.1 million compared to a benefit for income taxes of $0.1 million for the six months ended June 30, 2022.

The effective tax rate for the six months ended June 30, 2023 was 41.7% compared to (0.2)% for the six months ended June 30, 2022.

Provision for income taxes for the three months ended September 30, 2023 was $43.9 million compared to $1.1 million for the three months ended September 30, 2022.

The effective tax rate for the quarter was (245.9)% compared to 65.7% for the three months ended September 30, 2022.

The provision for income taxes for the nine months ended September 30, 2023 was $153.0 million compared to $1.0 million for the nine months ended September 30, 2022.

The effective tax rate for the nine months ended September 30, 2023 was 62.7% compared to 1.6% for the nine months ended September 30, 2022.

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.

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Net Income (Loss) and Earnings (Loss) Per Share

Net loss for the three months ended June 30, 2023 was $25.7 million, or ($0.48) per diluted share, compared to net income of $59.5 million, or $0.98 per diluted share, in the same period last year.

Net income for the six months ended June 30, 2023 was $152.7 million, an increase of $91.3 million, or 148.7%, from $61.4 million, or $1.02 per diluted share, in the same period last year.

Net loss for the three months ended September 30, 2023 was $61.8 million, or ($1.15) per diluted share, compared to net income of $0.6 million, or $0.01 per diluted share, in the same period last year.

Net income for the nine months ended September 30, 2023 was $90.9 million, an increase of $28.9 million, or 46.6%, from $62.0 million, or $1.05 per diluted share, in the same period last year.

Adjusted EBITDA and Adjusted EBITDAR by Segment

Consolidated Adjusted EBITDA was $130.0 million for the three months ended June 30, 2023, a decrease of $7.0 million, or 5.1%, from $137.0 million in the same period last year.

Consolidated Adjusted EBITDA was $256.4 million for the six months ended June 30, 2023, an increase of $4.7 million, or 1.9%, from $251.7 million in the same period last year.

Adjusted EBITDA for the Casinos & Resorts segment for the three months ended June 30, 2023 decreased $8.3 million to $79.7 million and decreased $8.2 million to $153.6 million for the six months ended June 30, 2023, each compared to the same prior year period.

Casinos & Resorts Adjusted EBITDAR was $111.0 million and $216.1 million for the three and six months ended June 30, 2023, respectively, which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below.

The decrease in adjusted EBITDA is a result of higher rent expenses due to the sale leaseback of the Company’s Biloxi and Tiverton properties, partially offset by organic growth.

Adjusted EBITDA for the International Interactive segment for the three months ended June 30, 2023 increased $2.0 million, or 2.4%, to $84.6 million and increased $8.9 million, or 5.7%, to $164.9 million for the six months ended June 30, 2023, each compared to the same prior year period.

Consolidated Adjusted EBITDA was $141.6 million for the three months ended September 30, 2023, a decrease of $9.3 million, or 6.2%, from $151.0 million in the same period last year.

Consolidated Adjusted EBITDA was $398.0 million for the nine months ended September 30, 2023, a decrease of $4.7 million, or 1.2%, from $402.7 million in the same period last year.

Adjusted EBITDAR for the Casinos & Resorts segment for the three months ended September 30, 2023 decreased $0.6 million to $118.2 million and increased $30.9 million to $334.3 million for the nine months ended September 30, 2023, each compared to the same prior year period.

These fluctuations from prior year are mainly attributable to the inclusion of our Bally’s Chicago and Tropicana Las Vegas properties in the current year, offset by softening in the market from decreased consumer spend.

Adjusted EBITDAR for the International Interactive segment for the three months ended September 30, 2023 increased $9.2 million to $85.5 million and increased $18.1 million, to $250.4 million for the nine months ended September 30, 2023, each compared to the same prior year period.

These increases were mainly due to stronger performance in the United Kingdom during the current year.

Adjusted EBITDA loss for the North America Interactive segment for the three and six months ended June 30, 2023 was $(17.7) million and $(28.2) million, respectively, compared to adjusted EBITDA losses of $(20.9) million and $(40.2) million for the three and six months ended June 30, 2022, respectively.

Adjusted EBITDAR losses for the North America Interactive segment for the three and nine months ended September 30, 2023 were $(17.6) million and $(45.8) million, respectively, compared to adjusted EBITDAR losses of $(19.7) million and $(59.9) million for the three and nine months ended September 30, 2022, respectively.

These reductions in adjusted EBITDA losses are largely driven by stronger performance in New Jersey, coupled with cost-savings in connection with the execution of the restructuring plan of our interactive business.

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, 2023 (in thousands)

Casinos & Resorts International Interactive North America Interactive Other Total

Net income (loss) $ 26,733 $ 35,497 $ (35,455) $ (52,426) $ (25,651)

Interest expense, net of interest income 6 (343) 1 67,429 67,093

Provision (benefit) for income taxes 10,779 483 (11,085) (28,826) (28,649)

Depreciation and amortization 17,448 44,391 9,517 7,831 79,187

Non-operating (income) expense (1)

1,001 (1,008) 1,554 (6,942) (5,395)

Foreign exchange (gain) loss (1) (315) 1,580 375 1,639

Transaction costs (2)

— 3,405 150 12,879 16,434

Restructuring charges (3)

— 1,595 1,789 56 3,440

Decommissioning costs (4)

— 927 1,416 — 2,343

Share-based compensation — — — 6,290 6,290

Gain on sale-leaseback, net (135) — — — (135)

Planned business divestiture (5)

— — 190 — 190

Impairment charges — — 9,653 — 9,653

Other, net (6)

544 (58) 2,737 376 3,599

Allocation of corporate costs 23,310 — 268 (23,578) —

Adjusted EBITDA $ 79,685 $ 84,574 $ (17,685) $ (16,536) $ 130,038

Rent expense associated with triple net operating leases (7)

The following table presents segment Adjusted EBITDAR, which is our reportable segment GAAP measure and our primary measure for profit or loss for our reportable segments, and consolidated Adjusted EBITDA.

The following table reconciles consolidated Adjusted EBITDA, which is a non-GAAP measure, to net income (loss), as derived from our financial statements (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022 2023 2022

Adjusted EBITDAR (1)

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

(i) change in value of naming rights liabilities, (ii) non-operating items of equity method investments including our share of net income or loss on an investment and depreciation expense related to our Rhode Island joint venture, 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 acquisition, integration and other transaction related costs.

(3) Restructuring costs related to the Interactive business workforce reduction, as described in Note 13.

(4) Costs related to the decommissioning of the Company's sports betting platform in favor of outsourcing the platform solution to third parties.

(5) Losses related to a North America Interactive business that Bally’s is marketing as held-for-sale as of June 30, 2023.

(6) Other includes the following items:

(i) non-routine legal expenses and settlement charges for matters outside the normal course of business, (ii) demolition costs related to a failed parking garage structure at our Bally’s Atlantic City property, and (iii) other individually de minimis expenses.

(7) 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 June 30, 2022 (in thousands)

Casinos & Resorts International Interactive North America Interactive Other Total

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

Interest expense, net of interest income (10) (130) (1) 45,969 45,828

Provision (benefit) for income taxes 27,229 (5,399) (5,758) (10,638) 5,434

Depreciation and amortization 14,757 44,311 7,273 8,432 74,773

Non-operating (income) expense (1)

— 698 7 (24,336) (23,631)

Foreign exchange loss — (263) (1,548) (2) (1,813)

Transaction costs (2)

3,018 884 487 11,131 15,520

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

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

Other, net (3)

2,580 — 2,887 394 5,861

Allocation of corporate costs 20,418 7 545 (20,970) —

Adjusted EBITDA $ 88,001 $ 82,612 $ (20,874) $ (12,710) $ 137,029

Casinos & Resorts $ 118,184 $ 118,740 $ 334,312 $ 303,413

International Interactive 85,477 76,313 250,352 232,252

North America Interactive (17,561) (19,672) (45,809) (59,871)

Other (12,883) (12,578) (46,687) (38,380)

Total 173,217 162,803 492,168 437,414

Rent expense associated with triple net operating leases (1)

(31,594) (11,835) (94,152) (34,717)

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

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

(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) other individually de minimis expenses.

Six Months Ended June 30, 2023 (in thousands)

Casinos & Resorts International Interactive North America Interactive Other Total

Net income (loss) $ 359,618 $ 51,077 $ (52,989) $ (205,021) $ 152,685

Interest expense, net of interest income (70,630) (53,572) (200,987) (145,085)

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Share-based compensation (6,257) (6,715) (18,587) (18,132)

Gain on sale-leaseback, net (374,321) — — — (374,321)

Gain on sale-leaseback — — 374,321 50,766

Planned business divestiture (6)

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Impairment charges — — (9,653) —

Other, net (6)

3,549 1,314 507 (6,728)

Allocation of corporate costs 47,509 — 607 (48,116) —

Adjusted EBITDA $ 153,570 $ 164,875 $ (28,248) $ (33,804) $ 256,393

Rent expense associated with triple net operating leases (7)

Adjusted EBITDAR $ 216,128

Net income (loss) $ (61,802) $ 593 $ 90,883 $ 61,983

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(1) 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.

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

(i) change in value of naming rights liabilities, (ii) gain on extinguishment of debt, (iii) non-operating items of equity method investments including our share of net income or loss on an investment and depreciation expense related to our Rhode Island joint venture, and (iv) other (income) expense, net.

(2) Includes financing costs incurred in connection with the Hard Rock Biloxi and Tiverton sale lease-back transactions and acquisition, integration and other transaction related costs.

(3) Restructuring costs related to the Interactive business workforce reduction, as described in Note 13.

(i) change in value of commercial rights liabilities, (ii) gain on extinguishment of debt, (iii) non-operating items of equity method investments including our share of net income or loss on an investment and depreciation expense related to our Rhode Island joint venture, and (iv) other (income) expense, net.

(3) Includes acquisition, integration and other transaction related costs, financing costs incurred in connection with the Hard Rock Biloxi and Tiverton sale lease-back transactions, the prior year tender offer process, and costs incurred to address the Standard General takeover bid.

(4) Restructuring costs related to the Interactive business workforce reduction.

(5) Costs related to the decommissioning of the Company’s sports betting platform in favor of outsourcing the platform solution to third parties.

(5) Losses related to a North America Interactive business that Bally’s is marketing as held-for-sale as of June 30, 2023.

(6) Losses related to a North America Interactive business that Bally’s is marketing as held-for-sale as of September 30, 2023.

(7) Other includes the following items:

Six Months Ended June 30, 2022 (in thousands)

Casinos & Resorts International Interactive North America Interactive Other Total

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

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

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

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

Non-operating (income) expense (1)

— 393 7 (43,328) (42,928)

Foreign exchange (gain) loss — 1,157 (3,143) (9) (1,995)

Transaction costs (2)

3,018 1,225 776 16,524 21,543

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

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

Other, net (3)

2,416 — 3,737 1,889 8,042

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

Adjusted EBITDA $ 161,791 $ 155,939 $ (40,199) $ (25,802) $ 251,729

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

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

(3) Other includes the following items:

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

Critical Accounting Estimates

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Cash Flows Summary

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2023 2022

Net cash provided by operating activities $ 118,359 $ 225,316

Net cash provided by (used in) investing activities 223,976 (55,834)

Net cash used in investing activities (2,247) (69,455)

Net cash used in financing activities (79,560) (189,948)

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Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2023 was $64.1 million, compared to net cash provided by operating activities of $164.5 million for the six months ended June 30, 2022.

The increase in cash used in operating activities was primarily driven by the $323.6 million increase in gain on sale-leaseback, coupled with negative changes in working capital, offset by an increase in net income of $91.3 million from the prior year.

Net cash provided by operating activities for the nine months ended September 30, 2023 was $118.4 million, compared to net cash provided by operating activities of $225.3 million for the nine months ended September 30, 2022.

The decrease in cash provided by operating activities was primarily driven by the $323.6 million increase in gain on sale-leaseback, partially offset by increased deferred income taxes, positive changes in working capital and an increase in net income of $28.9 million from the prior year.

Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2023 was $224.0 million, an increase of $279.8 million compared to net cash used in investing activities of $55.8 million for the six months ended June 30, 2022.

The increase in cash provided by investing activities was driven by proceeds from sale-leaseback transactions year-over-year.

Net cash used in investing activities for the nine months ended September 30, 2023 was $2.2 million, a decrease of $67.2 million compared to net cash used in investing activities of $69.5 million for the nine months ended September 30, 2022.

The increase in cash provided by investing activities was primarily driven by increased proceeds from sale-leaseback transactions and decreased cash paid for acquisitions, offset by the increase in capital expenditures year-over-year.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2023 was $174.5 million compared to net cash used in financing activities of $140.8 million for the six months ended June 30, 2022.

This increase was mainly attributable to a decrease in the issuance of long-term debt compared to prior year, coupled with the increase in stock repurchases, and partially offset by the decrease in repayments of long-term debt year-over-year.

Net cash used in financing activities for the nine months ended September 30, 2023 was $79.6 million compared to net cash used in financing activities of $189.9 million for the nine months ended September 30, 2022.

This decrease was mainly attributable to the decrease in stock repurchases coupled with the decrease in repayments of long-term debt compared to prior year, partially offset by a decrease in the issuance of long-term debt year-over-year.

Capital Return Program

During the six months ended June 30, 2023, we repurchased 1,774,845 common shares for an aggregate price of $30.5 million under our previously announced capital return program.

As of June 30, 2023, there was $164.1 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 six months ended June 30, 2023 or 2022, nor do we currently intend to pay any dividends on our common stock in the foreseeable future.

During the nine months ended September 30, 2023, we repurchased 1,774,845 common shares for an aggregate price of $30.5 million under our previously announced capital return program.

As of September 30, 2023, there was $164.1 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 nine months ended September 30, 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.

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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 six months ended June 30, 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.

During the nine months ended September 30, 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.

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

During the quarter ending September 30, 2023, the Company entered certain currency swaps to synthetically convert $400 million of its Term Loan Facility to an equivalent fixed-rate Euro-denominated instrument due October 2028 paying a fixed-rate coupon of approximately 6.74% per annum.

Such currency swaps as of September 30, 2023, which had an original effective conversion rate of 1.082 and €369.7 million notional amount at inception, reflected a gain of $9.0 million when converted to US dollar as of September 30, 2023, or an equivalent in US dollars of $391.0 million.

Refer to Note 11 “ Derivative Instruments ” and Note 15 “ Long-Term Debt ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

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 $2.36 billion as of June 30, 2023.

Minimum rent payable under operating leases was $2.34 billion as of September 30, 2023.

Refer to Note 16 “ Leases ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

As of June 30, 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.

As of September 30, 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.

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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 June 30, 2023, the Company has recorded this lease as a corresponding long-term financing obligation of $200.0 million.

As of September 30, 2023, the Company has recorded this lease as a corresponding long-term financing obligation of $200.0 million.

Capital Expenditures

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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 six months ended June 30, 2023, capital expenditures were $119.5 million compared to $116.1 million in the same period last year.

In the first half 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.

For the nine months ended September 30, 2023, capital expenditures were $266.2 million compared to $167.4 million in the same period last year.

During the nine months ended September 30, 2023, we continued our spending on maintenance and planned projects at our casino properties, the most significant being our Bally’s Chicago temporary facility, which commenced its operations during the third quarter.

Additionally, we made significant progress on our Bally’s Twin River and Bally’s Atlantic City properties.

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.

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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.

Spending on the project during 2023 was approximately $35 million and was completed during the third quarter.

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.

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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 the temporary casino to open in the second half of 2023, and currently estimates the permanent casino construction to be completed by the end of 2026.

The temporary casino commenced operations on September 9, 2023 at the Medinah Temple and includes approximately 800 gaming positions and 3 food and beverage venues.

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.

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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 cash-collateralized letters of credit, issued by Citizens Bank.

Cash collaterals are reported as restricted cash , with the long-term portion included within Other assets, as of June 30, 2023.

$90 million of the Payment was paid during the three months ended September 30, 2023.

$50 million of the Payment is secured by cash-collateralized letters of credit, issued by Citizens Bank and are reported as restricted cash as of September 30, 2023.

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.

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(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.

On September 9, 2023, operations commenced at the Company’s Bally’s Chicago temporary casino facility, which triggered required gaming license fees to be paid to the Illinois Gaming Board.

As of September 30, 2023, the Company recorded such fees totaling $135.3 million within “Intangible assets, net”, as an indefinite lived gaming license, and “Accounts payable” on the condensed consolidated balance sheets.

These fees were paid in October 2023 through borrowings on the Revolving Credit Facility.

Other Commitments

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 June 30, 2023, obligations related to these agreements were $106.9 million, with contracts extending through June 2036.

As of September 30, 2023, obligations related to these agreements were $138.4 million, with contracts extending through June 2036.

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