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. 46 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 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. 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. On June 22, 2023, the Governor of Rhode Island signed into law a bill authorizing Bally’s to be the exclusive provider of iGaming to Rhode Island customers for 20 years. The Company is expected to start offering iGaming services when the bill takes effect as of March 1, 2024. Operating Structure Our business is organized into three reportable segments: (i) Casinos & Resorts, (ii) International Interactive, and (iii) North America Interactive. 47 Casinos & Resorts - includes our 16 land-based casino properties, one horse racetrack and one golf course: Property Name Location Bally’s Atlantic City Casino Resort (“Bally’s Atlantic City”) Atlantic City, New Jersey Bally’s Black Hawk (1)(2) Black Hawk, Colorado 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”) 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”) (2) Rock Island, Illinois Bally’s Shreveport Casino & Hotel (“Bally’s Shreveport”) Shreveport, Louisiana 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”) (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 __________________________________ (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. (2) Properties leased from Gaming and Leisure Properties, Inc. (“GLPI”). 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 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 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. 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. 48 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. Key Performance Indicators 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. 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. 49 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 September 30, Nine Months Ended September 30, (in millions) 2023 2022 2023 2022 Total revenue $ 632.5 $ 578.2 $ 1,837.4 $ 1,679.0 Income from operations 37.2 53.7 420.0 161.5 Net (loss) income (61.8) 0.6 90.9 62.0 The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Gaming and non-gaming expenses 45.4 % 43.4 % 45.1 % 45.3 % General and administrative 36.5 % 34.6 % 39.8 % 34.5 % Gain from sale-leaseback, net — % — % (20.4) % (3.0) % Depreciation and amortization 12.3 % 12.8 % 12.6 % 13.6 % Total operating costs and expenses 94.1 % 90.7 % 77.1 % 90.4 % Income from operations 5.9 % 9.3 % 22.9 % 9.6 % Other income (expense) Interest expense, net (11.2) % (9.3) % (10.9) % (8.6) % Other non-operating income, net 2.5 % 0.3 % 1.4 % 2.8 % Total other income (expense), net (8.7) % (9.0) % (9.6) % (5.9) % (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 % __________________________________ Note: Amounts in table may not subtotal due to rounding. 50 Segment Performance 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 September 30, Nine Months Ended September 30, (in thousands, except percentages) 2023 2022 $ Change 2023 2022 $ Change Revenue: Gaming Casinos & Resorts $ 245,687 $ 237,951 $ 7,736 $ 709,812 $ 681,472 $ 28,340 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 Non-gaming Casinos & Resorts 113,339 90,589 22,750 311,162 226,913 84,249 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 Total revenue $ 632,477 $ 578,249 $ 54,228 $ 1,837,403 $ 1,679,016 $ 158,387 Operating costs and expenses: Gaming Casinos & Resorts $ 84,715 $ 78,229 $ 6,486 $ 247,065 $ 233,324 $ 13,741 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 Non-gaming Casinos & Resorts 52,011 37,691 14,320 144,556 102,354 42,202 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 General and administrative Casinos & Resorts 133,620 108,078 25,542 391,620 311,808 79,812 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 Total General and administrative $ 230,582 $ 200,044 $ 30,538 $ 732,147 $ 579,800 $ 152,347 Margins: Gaming expenses as a percentage of Gaming revenue 45 % 42 % 45 % 45 % Non-gaming expenses as a percentage of Non-gaming revenue 47 % 48 % 47 % 48 % General and administrative as a percentage of Total revenue 36 % 35 % 40 % 35 % 51 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 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 Gaming $ 508,895 $ 465,733 $ 43,162 9.3 % $ 1,489,086 $ 1,384,523 $ 104,563 7.6 % Hotel 56,728 45,675 11,053 24.2 % 155,451 106,539 48,912 45.9 % Food and beverage 39,438 31,724 7,714 24.3 % 108,270 83,147 25,123 30.2 % Retail, entertainment and other 27,416 35,117 (7,701) (21.9) % 84,596 104,807 (20,211) (19.3) % 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 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 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 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 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. 52 Income From Operations 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 $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 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. On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates are January 1, 2024 and January 1, 2025, for different aspects of the directive. A significant number of other countries are also implementing similar legislation. The Company is currently in the process of evaluating the impact of this on its consolidated financial statements. Net Income (Loss) and Earnings (Loss) Per Share 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 $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. 53 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 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) 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) Interest expense, net of interest income (70,630) (53,572) (200,987) (145,085) Provision (benefit) for income taxes (43,936) (1,137) (153,029) (996) Depreciation and amortization (77,487) (73,853) (231,235) (227,507) Non-operating (income) expense (2) 4,276 1,387 13,528 44,315 Foreign exchange (gain)/loss 8,459 253 2,512 2,248 Transaction costs (3) (20,953) (18,052) (59,405) (39,595) Restructuring charges (4) (411) — (20,673) — Decommissioning costs (5) — — (2,343) — Share-based compensation (6,257) (6,715) (18,587) (18,132) Gain on sale-leaseback — — 374,321 50,766 Planned business divestiture (6) (35) — (2,089) — Impairment charges — — (9,653) — Other (7) 3,549 1,314 507 (6,728) Net income (loss) $ (61,802) $ 593 $ 90,883 $ 61,983 __________________________________ (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 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. (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: (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. 54 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 Nine Months Ended September 30, (in thousands) 2023 2022 Net cash provided by operating activities $ 118,359 $ 225,316 Net cash used in investing activities (2,247) (69,455) Net cash used in financing activities (79,560) (189,948) Effect of foreign currency on cash and cash equivalents (2,251) (20,622) Change in cash and cash equivalents and restricted cash held for sale (1,648) — Net change in cash and cash equivalents and restricted cash 32,653 (54,709) Cash and cash equivalents and restricted cash, beginning of period 265,184 274,840 Cash and cash equivalents and restricted cash, end of period $ 297,837 $ 220,131 Operating Activities 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 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. 55 Financing Activities 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 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. 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 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. 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. 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. 56 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 $2.34 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. GLPI Leases 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. 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 September 30, 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 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. 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. 57 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. 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 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. 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 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. 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. In furtherance of these obligations, the host community agreement requires us to spend at least $1.34 billion on the design, construction and equipping of our temporary casino and our permanent resort and casino. The actual cost of the development may exceed this minimum capital investment requirement. In addition, land acquisition costs and financing costs, among other types of costs, are not counted toward meeting this requirement. 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”). $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. 58 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. 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 September 30, 2023, obligations related to these agreements were $138.4 million, with contracts extending through June 2036.