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: • risks related to the Mergers, including: ◦ the timing, receipt and terms and conditions of any required governmental or regulatory approvals of the Mergers; ◦ the ability of the parties to satisfy the conditions precedent and consummate the proposed Mergers; ◦ the timing of the consummation of the proposed Mergers; ◦ the ability of the parties to secure any required stockholder approval in a timely manner or on the terms desired or anticipated; ◦ failure of the parties to obtain the financing required to consummate the company merger; ◦ the ability to achieve anticipated benefits and savings expected from the proposed Mergers; ◦ risks related to the potential disruption of management’s attention from our ongoing business operations due to the pending Mergers; and ◦ the outcome of any legal proceedings related to the proposed Mergers. • 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; • our asset impairment analyses and our intangible asset and goodwill impairment tests; 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, 2023 as filed with the SEC on March 15, 2024 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. 44 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, iGaming, online bingo, sportsbook and free-to-play (“F2P”) games. As of September 30, 2024, we own and manage 15 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 14,900 slot machines, 550 table games and 3,800 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. Our proprietary software and technology stack is designed to allow us to provide consumers with 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. Agreement and Plan of Merger On July 25, 2024, we entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with SG Parent, LLC, The Queen Casino & Entertainment, Inc. (“Queen”), Epsilon Sub I, Inc. (“Merger Sub I”), Epsilon Sub II, Inc. (“Merger Sub II”)and, solely for purposes of specified sections thereof, SG CQ Gaming LLC (“SG Gaming”). Subject to the terms and conditions set forth in the Merger Agreement, in connection with the closing of the transaction, SG Gaming will contribute to the Company all shares of common stock of Queen that it owns in exchange for shares of common stock of the Company, immediately thereafter, Merger Sub I will merge into the Company with the Company surviving such merger and immediately thereafter, Merger Sub II will merge into Queen with Queen surviving such merger as a direct, wholly owned subsidiary of the Company. Refer to Note 1 “ General Information ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Merger Agreement and the mergers. Carved-Out Business On October 31, 2024, the Company entered into an agreement to carve-out components of its interactive business in Asia and certain other international markets in its International Interactive reportable segment (the “Carved-Out Business”) to a company (the “Buyer”) formed by members of the management of the Carved-Out Business. The Buyer is acquiring the net-assets, predominantly working capital, of the Carved-Out Business, in exchange for a seven-year term note in the principal amount of €30 million, subject to applicable interest. Certain intellectual property used in the Carved-Out Business has been placed in trust, with royalty licensing fees paid to the trust by the Buyer for a term of five years (subject to extension). All royalty licensing fees, net of trustee administrative expenses, are paid to the Company by the trust and are expected to be reported by the Company as licensing revenues. The Company will also provide the Carved-Out Business with certain transition services. In connection with the separation transaction, the Company will acquire penny warrants that represent a 19.9% fully-diluted interest in the Buyer, which is expected to result in the deconsolidation of the Carved-Out Business. Bally’s will have no role in the management or operational governance of the Carved-Out Business. The separation transaction is intended to allow Bally’s to focus its capital and resource allocation on North American and European business, and the Carved-Out Business will benefit from focused management attention and aligned ownership. 45 Post transaction, the financial statements of the Company will only reflect licensing and royalty revenues received from a trust that it licenses to the Buyer, which are expected to be lower than revenues recorded under the current accounting treatment. However, the licensing and royalty revenues received from the Buyer are expected to be at higher profitability margins, leading to a modest decrease in Income from operations on an annualized basis after giving effect to the transaction. The gain or loss on sale of the net-assets of the Carved-Out Business has not yet been determined as it is subject to valuation procedures and associated goodwill allocation, the release of accumulated currency translation adjustments for the disposed entities, and other post-closing adjustments. The goodwill allocation, as well as the completion of a re-assessment of the Company’s goodwill reporting units and long-lived asset groups upon completion of the separation transaction, could result in material impairment charges. Long-lived assets, predominantly intellectual property (including those to be held in trust), subject to the cash flows of the Carved-Out Business are $332.0 million as of September 30, 2024. Operating Structure Our business is organized into three reportable segments: (i) Casinos & Resorts, (ii) International Interactive, and (iii) North America Interactive. Casinos & Resorts - includes our 15 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”) (2)(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 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 15 “ Leases ” for further information. (3) Temporary casino facility while permanent casino resort is constructed. Site of future permanent casino resort is leased from GLPI. International Interactive - includes Gamesys, primarily a business-to-consumer (“B2C”) iCasino operator. North America Interactive - includes the following North America businesses: • Bally’s Interactive, primarily a B2C online iGaming and online sportsbook operator; and • Consumer facing service and marketing engines, including SportCaller, a business-to-business (“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; an investment in the Association of Volleyball Professionals (“AVP”), a professional beach volleyball organization and host of the longest-running domestic beach volleyball tour; and an investment in Watch Stadium, a content distribution channel focused on sporting events. The North America Interactive reportable segment also includes the North American operations of Gamesys. Refer to Note 18 “ Segment Reporting ” to our condensed consolidated financial statements for additional information on our segment reporting structure. 46 Rhode Island Regulatory Agreement We are party to an Amended and Restated Regulatory Agreement (the “Regulatory Agreement”), with the Rhode Island Department of Business Regulation (“DBR”) and the State Lottery Division of the Rhode Island Department of Revenue (“DoL”). The Regulatory Agreement contains financial and other covenants that, among other things, (i) restrict the acquisition of stock and other financial interests in us, (ii) relate to the licensing and composition of members of our management and Board of Directors (the “Board”), (iii) prohibit certain competitive activities and related-party transactions and (iv) restrict our ability to declare or make restricted payments (including dividends), incur additional indebtedness or take certain other actions, if our leverage ratio exceeds 5.50 to 1.00 (in general being gross debt divided by Adjusted EBITDA, each as defined in the Regulatory Agreement). The Regulatory Agreement also provides affirmative obligations, including setting a minimum number of employees that we must employ in Rhode Island and providing the DBR and DoL with periodic information updates about us. Among other things, the Regulatory Agreement prohibits us and our subsidiaries from owning, operating, managing or providing gaming specific goods and services to any properties in Rhode Island (other than Bally’s Twin River and Bally’s Tiverton), Massachusetts, Connecticut or New Hampshire. A failure to comply with the Regulatory Agreement could subject us to injunctive or monetary relief, payments to the Rhode Island regulatory agencies and ultimately the revocation or suspension of our licenses to operate in Rhode Island. In addition, our master contracts with Rhode Island 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 the term, including an expansion and the addition of new amenities at Bally’s Twin River. As a licensed Technology Provider since July 1, 2021, Bally’s Twin River is entitled to an additional share of net terminal income on Video Lottery Terminals (“VLTs”) which they owned or leased. June 2021 legislation in Rhode Island also authorized a joint venture between Bally’s and IGT Global Solutions Corporation (“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 (“RI Joint Venture”). 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 the RI Joint Venture 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 RI Joint Venture 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 public health crises such as the COVID-19 pandemic, the impact of global and regional conflicts, 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. 47 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. 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 2024 and First Nine Months 2024 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) 2024 2023 2024 2023 Total revenue $ 630.0 $ 632.5 $ 1,870.1 $ 1,837.4 (Loss) income from operations (157.7) 37.2 (226.0) 420.0 Net (loss) income (247.9) (61.8) (482.0) 90.9 48 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, 2024 2023 2024 2023 Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Gaming and non-gaming expenses 45.4 % 45.4 % 45.7 % 45.1 % General and administrative 43.4 % 36.5 % 41.4 % 39.8 % Loss (gain) on sale-leaseback, net 23.8 % — % 8.0 % (20.4) % Depreciation and amortization 12.3 % 12.3 % 16.9 % 12.6 % Total operating costs and expenses 125.0 % 94.1 % 112.1 % 77.1 % (Loss) income from operations (25.0) % 5.9 % (12.1) % 22.9 % Other (expense) income: Interest expense, net (11.7) % (11.2) % (11.8) % (10.9) % Other non-operating (expense) income, net (7.9) % 2.5 % (2.1) % 1.4 % Total other expense, net (19.7) % (8.7) % (13.9) % (9.6) % (Loss) income before income taxes (44.7) % (2.8) % (26.0) % 13.3 % (Benefit) provision for income taxes (5.3) % 6.9 % (0.2) % 8.3 % Net (loss) income (39.3) % (9.8) % (25.8) % 4.9 % __________________________________ Note: Amounts in table may not subtotal due to rounding. 49 Segment Performance The following table sets forth certain financial information associated with results of operations for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except percentages) 2024 2023 $ Change 2024 2023 $ Change Revenue: Gaming Casinos & Resorts $ 256,234 $ 245,687 $ 10,547 $ 762,197 $ 709,812 $ 52,385 International Interactive 228,693 240,577 (11,884) 687,109 720,925 (33,816) North America Interactive 38,979 22,631 16,348 115,408 58,349 57,059 Total Gaming revenue 523,906 508,895 15,011 1,564,714 1,489,086 75,628 Non-gaming Casinos & Resorts 97,124 113,339 (16,215) 276,541 311,162 (34,621) International Interactive 2,244 3,307 (1,063) 7,907 16,305 (8,398) North America Interactive 6,700 6,936 (236) 20,951 20,850 101 Total Non-gaming revenue 106,068 123,582 (17,514) 305,399 348,317 (42,918) Total revenue $ 629,974 $ 632,477 $ (2,503) $ 1,870,113 $ 1,837,403 $ 32,710 Operating costs and expenses: Gaming Casinos & Resorts $ 95,453 $ 84,715 $ 10,738 $ 284,695 $ 247,065 $ 37,630 International Interactive 100,700 115,751 (15,051) 312,039 352,229 (40,190) North America Interactive 38,755 28,665 10,090 110,488 66,437 44,051 Total Gaming expenses 234,908 229,131 5,777 707,222 665,731 41,491 Non-gaming Casinos & Resorts 46,088 52,011 (5,923) 134,674 144,556 (9,882) International Interactive 1,393 2,483 (1,090) 5,095 9,393 (4,298) North America Interactive 3,847 3,547 300 8,383 8,712 (329) Total Non-gaming expenses 51,328 58,041 (6,713) 148,152 162,661 (14,509) General and administrative Casinos & Resorts 167,281 133,620 33,661 489,372 391,620 97,752 International Interactive 40,419 40,584 (165) 136,903 146,981 (10,078) North America Interactive 20,786 16,470 4,316 51,795 76,867 (25,072) Other 45,107 39,908 5,199 96,378 116,679 (20,301) Total General and administrative $ 273,593 $ 230,582 $ 43,011 $ 774,448 $ 732,147 $ 42,301 Margins: Gaming expenses as a percentage of Gaming revenue 45 % 45 % 45 % 45 % Non-gaming expenses as a percentage of Non-gaming revenue 48 % 47 % 49 % 47 % General and administrative as a percentage of Total revenue 43 % 36 % 41 % 40 % 50 Three and Nine Months Ended September 30, 2024 Compared to Three and Nine Months Ended September 30, 2023 Total Revenue Total revenue for the three and nine months ended September 30, 2024 and 2023 consisted of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 $ Change % Change 2024 2023 $ Change % Change Gaming $ 523,906 $ 508,895 $ 15,011 2.9 % $ 1,564,714 $ 1,489,086 $ 75,628 5.1 % Hotel 41,672 56,728 (15,056) (26.5) % 118,026 155,451 (37,425) (24.1) % Food and beverage 35,403 39,438 (4,035) (10.2) % 103,478 108,270 (4,792) (4.4) % Retail, entertainment and other 28,993 27,416 1,577 5.8 % 83,895 84,596 (701) (0.8) % Total revenue $ 629,974 $ 632,477 $ (2,503) (0.4) % $ 1,870,113 $ 1,837,403 $ 32,710 1.8 % Total revenue for the three months ended September 30, 2024 decreased 0.4% to $630.0 million, from $632.5 million in the same period last year and total revenue for the nine months ended September 30, 2024 increased 1.8% to $1.87 billion, from $1.84 billion in the same period last year. We saw total revenue increase in our Casinos & Resorts reportable segment, mainly due to the inclusion of our Bally’s Chicago temporary casino property, which contributed approximately $32.6 million and $64.2 million during the three and nine months ended September 30, 2024, respectively, partially offset by the incremental decrease in revenue associated with the closure of our Tropicana Las Vegas property during the second quarter of 2024 of approximately $25.0 million and $32.1 million, respectively. Additionally, the expanded operating jurisdictions within our North America Interactive reportable segment contributed incremental revenue of approximately $7.8 million and $33.9 million for the three and nine months ended September 30, 2024, respectively, compared to the prior year. Gaming and Non-gaming Expenses Gaming and non-gaming expenses for the three months ended September 30, 2024 decreased $0.9 million, from $287.2 million in 2023, and for the nine months ended September 30, 2024 increased $27.0 million, from $828.4 million in 2023. The overall increase in gaming and non-gaming expenses from the prior year was mainly attributable to the inclusion of expenses from our recently opened Bally’s Chicago temporary casino which contributed approximately $13.9 million and $46.9 million to the increase in both gaming and non-gaming expenses during the three and nine months ended September 30, 2024, respectively, partially offset by the incremental decrease in expense associated with the closure of our Tropicana Las Vegas property of $13.8 million and $28.9 million, respectively. General and Administrative General and administrative expense for the three months ended September 30, 2024 increased $43.0 million from $230.6 million in the same period last year, and for the nine months ended September 30, 2024 increased $42.3 million from $732.1 million in the same period last year. The year to date fluctuation in general and administrative expense is primarily attributable to higher operating expenses associated with the opening of our Bally’s Chicago property and increased Merger Agreement costs in the current year, offset by decreased acquisition and integration costs and severance and employee related restructuring costs compared to prior year. Depreciation and Amortization Depreciation and amortization for the three months ended September 30, 2024 was $77.8 million, an increase of $0.3 million compared to the same period last year, and for the nine months ended September 30, 2024 was $316.3 million, an increase of $85.1 million compared to the same period last year. The year to date increase was primarily driven by our Tropicana Las Vegas property, where we recorded accelerated depreciation of $80.1 million on assets as a result of the recent closure of the property on April 2, 2024. 51 Income (Loss) From Operations Loss from operations was $157.7 million for the three months ended September 30, 2024 compared to income from operations of $37.2 million in the same period last year. Loss from operations was $226.0 million for the nine months ended September 30, 2024 compared to income from operations of $420.0 million in the same period last year. The change year-over-year was driven by the loss on sale-leaseback of $150.0 million related to the lease modification event involving the real estate underlying the Bally’s Chicago project in the current year, compared to the gain on sale-leaseback of $374.3 million recorded during the first quarter of 2023 related to our Hard Rock Biloxi and Bally’s Tiverton properties, combined with the depreciation at our Tropicana Las Vegas property in the current year, as noted above. Other Income (Expense) Total other expense increased $68.7 million to $123.8 million for the three months ended September 30, 2024 from $55.1 million, and increased $83.6 million to $259.7 million for the nine months ended September 30, 2024 from $176.0 million, each compared to the same periods last year. The increase in other expense was primarily attributable to an increase in interest expense due to higher interest rates of our borrowings year-over-year and increased foreign currency losses, partially offset by increased interest income recognized on our derivative instruments. Provision (Benefit) for Income Taxes Benefit for income taxes for the three and nine months ended September 30, 2024 was $33.6 million and $3.7 million, respectively, compared to provision for income taxes of $43.9 million and $153.0 million for the three and nine months ended September 30, 2023, respectively. The effective year to date tax rate for 2024 was 0.8% compared to 62.7% in the prior year. The 2024 year to date effective tax rate differed from the US federal statutory tax rate of 21%, creating a benefit for income tax on the Company’s Loss before income taxes, largely due to an increase in the valuation allowance, entirely offset by discrete tax asset related to the sale-leaseback transaction involving the real estate underlying the Bally’s Chicago project. 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 estimated impact of this directive is immaterial to the Company’s consolidated financial statements in the current year. Net Income (Loss) and Earnings (Loss) Per Share Net loss for the three months ended September 30, 2024 was $247.9 million, or $(5.10) per diluted share, compared to $61.8 million, or $(1.15) per diluted share, for the three months ended September 30, 2023. Net loss for the nine months ended September 30, 2024 was $482.0 million, or $(9.96) per diluted share, compared to net income of $90.9 million, or $1.67 per diluted share, for the nine months ended September 30, 2023. Adjusted EBITDA and Adjusted EBITDAR by Segment Consolidated Adjusted EBITDA was $137.7 million for the three months ended September 30, 2024 compared to $141.6 million for the same period last year. Consolidated Adjusted EBITDA was $387.7 million for the nine months ended September 30, 2024, a decrease of $10.3 million, or 2.6%, from $398.0 million in the same period last year. Adjusted EBITDAR for the Casinos & Resorts segment for the three months ended September 30, 2024 decreased $17.7 million to $100.4 million and for the nine months ended September 30, 2024 decreased $44.7 million to $289.7 million, each compared to the same prior year periods. These decreases were primarily attributable to weather impacts across multiple properties and the closure of the Tropicana Las Vegas in the current year, partially offset by the inclusion of Bally’s Chicago that opened at the end of the third quarter of 2023. 52 Adjusted EBITDAR for the International Interactive segment increased $4.6 million to $90.0 million and increased $4.5 million to $254.9 million for the three and nine months ended September 30, 2024, respectively, compared to the same prior year periods, driven by softness in our non-UK operations year-over-year, offset by stronger performance in the United Kingdom in the current year. Adjusted EBITDAR loss for the North America Interactive segment for the three months ended September 30, 2024 was $(11.0) million compared to an adjusted EBITDAR loss of $(17.6) million for the three months ended September 30, 2023. For the nine months ended September 30, 2024, adjusted EBITDAR loss was $(27.9) million compared to an adjusted EBITDAR loss of $(45.8) million for the nine months ended September 30, 2023. The decrease in adjusted EBITDAR losses is largely driven by expanded operating jurisdictions and stronger performance in iGaming and sportsbook in the current year. 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): 53 Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Revenue Casinos & Resorts $ 353,358 $ 359,026 $ 1,038,738 $ 1,020,974 International Interactive 230,937 243,884 695,016 737,230 North America Interactive 45,679 29,567 136,359 79,199 Total $ 629,974 $ 632,477 $ 1,870,113 $ 1,837,403 Adjusted EBITDAR Casinos & Resorts $ 100,442 $ 118,184 $ 289,661 $ 334,312 International Interactive 90,030 85,477 254,854 250,352 North America Interactive (10,976) (17,561) (27,891) (45,809) Other (13,163) (12,883) (40,377) (46,687) Total 166,333 173,217 476,247 492,168 Rent expense associated with triple net operating leases (1) (28,602) (31,594) (88,575) (94,152) Adjusted EBITDA 137,731 141,623 387,672 398,016 Interest expense, net of interest income (73,975) (70,630) (221,306) (200,987) Benefit (provision) for income taxes 33,629 (43,936) 3,748 (153,029) Depreciation and amortization (77,800) (77,487) (316,328) (231,235) Non-operating (income) expense (2) (22,122) 4,276 (19,992) 13,528 Foreign exchange (loss) gain (30,246) 8,459 (26,447) 2,512 Transaction costs (3) (19,788) (20,953) (39,123) (59,405) Restructuring charges (4) 1,068 (411) (17,921) (20,673) Tropicana Las Vegas demolition costs (5) (19,643) — (31,904) — Decommissioning costs (6) — — — (2,343) Share-based compensation (4,099) (6,257) (11,629) (18,587) (Loss) gain on sale-leaseback, net (7) (150,000) — (150,000) 374,321 Planned business divestiture (8) — (35) — (2,089) Impairment charges (9) — — (12,757) (9,653) Merger Agreement costs (10) (9,802) — (11,791) — Payment Service Provider write-off (11) (6,333) — (6,333) — Other (12) (6,475) 3,549 (7,854) 507 Net (loss) income $ (247,855) $ (61,802) $ (481,965) $ 90,883 __________________________________ (1) Consists of the operating lease components contained within our triple net master lease 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 Tropicana Las Vegas, through its closure in April 2024, 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 prior year sale lease-back transaction. (4) Restructuring charges representing the severance and employee related benefits related to the announced Interactive business restructuring initiatives and the closure of the Company’s Tropicana Las Vegas property on April 2, 2024. (5) Demolition costs associated with the Tropicana Las Vegas property which is part of the plan to redevelop the site with a state-of-the-art integrated resort and ballpark. As part of the binding term sheet, GLPI has agreed to reimburse the Company for such expenses and will increase rent to reflect the additional funding. (6) Costs related to the decommissioning of the Company’s sports betting platform in favor of outsourcing the platform solution to third parties. 54 (7) Loss on sale-leaseback of $150 million in the third quarter of 2024 related to the lease modification of the real estate underlying the Bally’s Chicago project and gain on sale-leaseback in the prior year related to our Hard Rock Biloxi and Bally’s Tiverton properties. (8) Losses related to a North America Interactive business that Bally’s was marketed as held-for-sale in 2023. (9) Includes impairment charges on long-lived assets in the second quarter of 2024 and impairment charges related to assets held-for-sale in 2023. (10) Costs incurred in connection with the merger agreement signed July 25, 2024 with Standard General. (11) In the third quarter, the Company recorded a $6.3 million charge to reduce amounts due from payment service providers (“PSP”) due to a circumstance whereby the payment processer for certain online sports wagering deposits failed to capture and settle funds with patrons of the Company. The Company was not able to recover the full amount due from the payment service provider, resulting in a write down to the recoverable amount. In addition to amounts recovered, the Company received $5.1 million from the PSP as a signing bonus for entering into an extension agreement. (12) Other includes the following items: (i) non-routine legal expenses and settlement charges for matters outside the normal course of business, (ii) insurance and business interruption recoveries, and (iii) other individually de minimis expenses. 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, 2023 for a complete list of our Critical Accounting Estimates. Recent Accounting Pronouncements Refer to Note 4 “ Recently 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) 2024 2023 Net cash provided by operating activities $ 76,178 $ 118,359 Net cash used in investing activities (191,081) (2,247) Net cash provided by (used in) financing activities 75,708 (79,560) Effect of foreign currency on cash and cash equivalents 4,472 (2,251) Change in cash and cash equivalents and restricted cash held for sale — (1,648) Net change in cash and cash equivalents and restricted cash (34,723) 32,653 Cash and cash equivalents and restricted cash, beginning of period 315,262 265,184 Cash and cash equivalents and restricted cash, end of period $ 280,539 $ 297,837 Operating Activities Net cash provided by operating activities for the nine months ended September 30, 2024 was $76.2 million, compared to $118.4 million for the nine months ended September 30, 2023. The decrease in cash provided by operating activities was primarily driven by the changes in working capital, offset by increased foreign currency losses in the current year. 55 Investing Activities Net cash used in investing activities for the nine months ended September 30, 2024 was $191.1 million, an increase of $188.8 million compared to net cash used in investing activities of $2.2 million for the nine months ended September 30, 2023. This change was primarily driven by the proceeds from sale-leaseback transactions in the prior year and a decrease in cash paid for acquisitions and capital expenditures year-over-year. Financing Activities Net cash provided by financing activities for the nine months ended September 30, 2024 was $75.7 million compared to net cash used in financing activities of $79.6 million for the nine months ended September 30, 2023. This increase was mainly attributable to an increase in long-term debt borrowings offset by higher payments made year-over-year and a decrease in stock repurchases. Capital Return Program As of September 30, 2024, there was $95.5 million available for use under the capital return program, subject to limitations in our regulatory and debt agreements. Future share repurchases may be effected in various ways, which could include open-market or private repurchase transactions, accelerated stock repurchase programs, tender offers or other transactions. The amount, timing and terms of any return of capital transaction will be determined based on prevailing market conditions and other factors. There is no fixed time period to complete share repurchases. We did not pay cash dividends during the nine months ended September 30, 2024 or 2023, 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”). 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. 56 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 also includes certain financial covenants the Company is required to maintain throughout the term of the credit facility. These financial covenants include a provision where, in the event borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment, the Company is required to maintain a first lien secured indebtedness to Adjusted EBITDA ratio of 5.00 to 1.00. As of September 30, 2024, the Company was in compliance with all applicable covenants. During 2023, the Company entered into certain currency swaps to synthetically convert $500 million of its Term Loan Facility to an equivalent fixed-rate Euro-denominated instrument, due October 2028, with a weighted average fixed interest rate of approximately 6.69% per annum. The Company also entered into additional currency swaps to synthetically convert $200 million, notional, of its floating rate Term Loan Facility, to an equivalent GBP-denominated floating rate instrument, due October 2026. Additionally, as part of the Company’s risk management program to manage its overall interest rate exposure, the Company entered into a notional aggregate amount of $500 million interest rate collar arrangements maturing in 2028 where the Company’s SOFR floating rate interest under its Term Loan Facility is capped at 4.25%, with a weighted average SOFR floor rate of 3.22%, pursuant to the interest rate collar arrangements. In the third quarter of 2024, the Company settled $500.0 million of notional interest rate collars and received $3.9 million in termination payments, reflecting the fair value on the settlement date. Additionally, the Company simultaneously entered into a series of interest rate contracts in a notional aggregate amount of $1.00 billion, to further manage the Company’s exposure to interest rate movements associated with the Company’s variable rate Term Loan Facility through its synthetic conversion to fixed rate debt. The tenor of these contracts were matched with the maturity of the Term Loan Facility tranche maturing on October 1, 2028. Refer to Note 10 “ Derivative Instruments ” and Note 14 “ 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 $4.17 billion as of September 30, 2024, of which $45.3 million is due within the current year. Refer to Note 15 “ Leases ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. GLPI Leases As of September 30, 2024, 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. During 2023, 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. (“GLP”), an affiliate 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 under the Master Lease by $48.5 million. In addition to the properties under the Master Lease, the Company leases the land associated with Tropicana Las Vegas. 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. During the third quarter, the Company entered into a lease modification, whereby GLPI funded $48.6 million to the Company for the demolition of the building at the Tropicana Las Vegas site in exchange for increasing annual rent by $4.1 million. 57 In the third quarter of 2024, GLP acquired the real estate underlying the Bally’s Chicago project, assuming the existing lease, for which the Company was subject to a $200.0 million financing obligation. Reclassifying the lease as an operating lease due to the transfer of control of the land asset from the Company to the lessor, permitted sale recognition, resulting in the Company derecognizing the $350.0 million land asset and the $200.0 million the long-term financing obligation, and recording a $150.0 million loss on sale-leaseback. Additionally, in the third quarter of 2024, the Company entered into a Binding Term Sheet to form a strategic construction and financing arrangement with GLP, which includes the funding to complete the construction of Bally’s Chicago permanent casino. GLP will amend the existing land lease through a new master lease agreement with Bally’s Chicago Operating Company, LLC (“Chicago MLA”). The Chicago MLA includes annual rent of $20 million, subject to customary escalation provisions. The Chicago MLA will also provide up to $940 million in construction financing, subject to conditions and approvals. The Company will pay additional rent under the Chicago MLA based on a 8.5% capitalization rate on funded amounts. The initial lease term for the Chicago MLA is 15 years with renewal options to be agreed upon by the parties. The Company will also sell and lease back from GLP its properties in Kansas City and Shreveport for $395 million, with initial annual rent of $32.2 million, subject to escalation. In addition, the Company plans to sell and lease back its Bally’s Twin River property to GLP by 2026 for $735 million, with initial annual rent of $58.8 million. GLP has the right to call this transaction starting October 2026. All such transactions are subject to required regulatory approvals. 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, 2024, capital expenditures were $155.8 million compared to $266.2 million in the same period last year. During the nine months ended September 30, 2024, we continued our spending on our planned projects and maintenance at our casino properties, the most significant being our future Bally’s Chicago permanent facility. 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, both of which opened in the first half of 2023. Approximately $48.2 million of the committed investment remains as of September 30, 2024. 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. As of September 30, 2024, all investment requirements had been met and no commitment to invest in non-hotel projects remains. Centre County, PA - In September 2024, we issued a termination notice to cancel the framework agreement entered into on December 31, 2020 to design, develop, construct and manage a Category 4 licensed casino in Centre County, Pennsylvania. We concluded that market circumstances have changed and that such development at this point no longer fits with our strategic objectives. In accordance with the provisions of the framework agreement, we paid a termination fee of $5 million and the charge is reflected the quarter ending September 30, 2024. 58 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, 20,000 square feet of exhibition space, 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 2024, we estimate spending of approximately $190.2 million primarily dedicated to demolition and site preparation. We expect future funding of the permanent casino construction to be financed through the GPLI agreement noted above. In connection with the entry into the host community agreement with the City of Chicago, 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 outfitting 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, do not count towards satisfying such minimum expenditure. Other Contractual Obligations Sponsorship Commitments - The Company has entered into several sponsorship agreements with various professional sports leagues and teams, allowing the Company use of official league marks for branding and promotions, among other rights. As of September 30, 2024, obligations related to these agreements were $129.8 million, with contracts extending through 2037. Interactive Technology Partnerships - The Company has certain multi-year agreements with its various market access and content providers, as well as its online sports betting platform partners, that require the Company to pay variable fees based on revenue, with minimum annual guarantees. As of September 30, 2024, the cumulative minimum obligation committed in these agreements is approximately $54.7 million, extending through 2029.