Good day, and welcome to the Bally's Corporation's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to turn the call over to Charlie Diao, Senior Vice President, Finance and Corporate Treasurer. Please go ahead, sir.

Good morning, and thank you for joining us on today's call. The earnings release and presentation that accompany this call are available on our website in the Investor Relations section at www.ballys.com. With me today are the Chairman of the Board, Soo Kim; our Chief Executive Officer, Robeson Reeves; Bally's President, George Papanier; Marcus Glover, our Chief Financial Officer; and Jaymin Patel, our Vice Chairman of the Board. Before we begin, we would like to remind everyone that comments made by management today will contain forward-looking statements. These forward-looking statements include plans, expectations, estimates, and projections that involve significant risks and uncertainties. These risks are discussed in the company's earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements. In addition, during today's call, management will refer to certain non-GAAP financial measures. Reconciliation to the most comparable GAAP financial measures are included in the schedules contained in our earnings release. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project non-recurrent expenses and one-time costs. Today's call is also being broadcast live on our Investors' website and will be available for replay shortly after the completion of this call. Let me hand the call over to Robeson.

Thank you, Charlie, and hello, everyone. We are pleased to present our third quarter results where we continue to grow market share with a tight control of costs. Our operations perform well in competitive and mature markets. We have solid operating performance across our three business segments with consolidated revenues rising by 9.4% and consolidated adjusted EBITDA increasing by 6.4% year-over-year. We also reached several significant project milestones, strengthening our foundation for 2024 and beyond. Notably, we achieved a successful soft launch of our Chicago Temporary Casino at the Medinah Temple on September 9, culminating in a formal ribbon-cutting ceremony on October 3. Concurrently, we completed our Kansas City property transformation and redevelopment also in September within budget. We see both investments in our C&R segment paying off in 2024 in growth and profit contribution as these investments bear fruit. Our Bally's International Interactive division continues its impressive operating momentum in the U.K., where we also successfully launched the Bally's branded iCasino app. We believe that Bally's brand will drive revenue and profit growth and build brand equity in the U.K. market. In North America Interactive, we rolled out the new Bally Bet OSB app in four states and five retail locations on the Kambi and White Hat platforms. By year-end, our goal is for the rollout of our Bally Bet app in at least seven states in North America. Turning now to our operating fundamentals, I'll first turn it to George to discuss our core Casinos & Resorts performance.

Thank you, Robeson. Well, we've had a very productive third quarter in Casino & Resorts, successfully opening a temporary casino at the Medinah Temple in Chicago, and we've delivered that project inside of budget, including a three-month delay due to regulatory sign-off. We also took over the concession to operate the Bally's Golf Links at Ferry Point in the Bronx. While for competitive reasons we are limited in the information that we can share today, we can disclose that the golf course operates profitably from EBITDA and cash flow perspectives. Further details regarding our plans for the site will be disclosed in the future. The Casino & Resorts customer base remained resilient in the quarter as revenues increased 9.3% year-over-year, which includes a full quarter contribution from the Trop and approximately three weeks from the Chicago Temp. Our portfolio is well-positioned, and we continue to take market share in our respective markets, which can be seen in the state's monthly gaming data, and we outperformed in most states. Our Rhode Island and Kansas City casinos were once again revenue standouts, while Black Hawk and Quad Cities were also strong. While we are closely monitoring customer spending, outside of the three very specific instances, we haven't seen major shifts in behavior. We did see a shift in behavior at the Trop in Las Vegas, at Bally's Atlantic City, both destination markets, which are hyper-competitive. Additionally, as highlighted last quarter, Evansville continues to be impacted by newer HHR facilities across the Kentucky border. My team and I continue to take proactive measures to preserve our margins and profit performance across the portfolio. From a marketing perspective, our efforts will be to continue finding ways to motivate our higher-tier customer segment, a strategy which has proven to yield solid results over time. As…

Thank you, George. Bally's International Interactive continues to show strength, particularly in the U.K., where net revenues increased by an impressive 13.1% year-over-year in our reported financial results. We continue to gain incremental market share due to our timely adaptations in response to regulatory policy changes in the U.K. market. Our strategy and operating formula of increasing actives, average revenue per user and first-time depositors while reducing cost per acquisition continues to yield positive results. In North America Interactive, we remain focused on expanding our iGaming footprint and maintain positive momentum. Our share in New Jersey continues to gradually increase, and we remain on track to achieve our medium-term market share goal of 6% to 8%. Early results in Pennsylvania remain encouraging since our launch in June 2023. Ontario remains an opportunity as we build our player database. Overall, our iGaming business is already generating positive returns, and we're optimistic of its continued growth and contribution. We are all hands on deck in preparing for market launch of iGaming in Rhode Island in March 2024, and look forward to introducing iGaming in a state where we have a deep database and significant brand presence. We are committed to growing our Bally Bet OSB business with prudent financial approaches and disciplined marketing investments, given our belief that OSB is the path to iGaming. In terms of our near-term outlook, as you saw in our press release, we have updated our full year 2023 adjusted EBITDAR guidance range for the remainder of the year. This reflects the later opening of our Chicago Temporary facility and an expected sustained pullback for the Trop that the A's project ramps up. We're also considering potential foreign exchange headwinds at Bally's International Interactive despite continued operating momentum due to the recent strengthening of the U.S. dollar.…

Thanks, Robeson. As Robeson pointed out, our immediate focus remains closing out a strong 2023, which saw our company grow and evolve as we executed our growth initiatives. Moving into 2024, we are equally excited as the foundational elements are in place to foster continued growth across all three of our operating business segments. We remain committed to streamlining and enhancing our operational and financial performance while managing our development pipeline. Although our company is young, our outlook is promising, and we're excited about the many opportunities that lie ahead. For the third quarter, we generated approximately $633 million, which is an increase of 9% year-on-year, and adjusted EBITDAR of $173 million, which is an increase of 6% year-on-year, after accounting for rent expense of $32 million. For our cash-generating segments of Casino & Resorts and International Interactives, our adjusted EBITDAR margin was 33% and 35%, respectively. Our Casino & Resorts portfolio demonstrated solid top-line results characterized by year-over-year organic growth in Rhode Island, Kansas City, Black Hawk, and Quad Cities, which helped offset continue [Technical Difficulty] in Atlantic City, Evansville, and Tropicana. As George mentioned during his earlier commentary, we made the decision not to implement operational changes at the Tropicana until after Major League Baseball votes on the A's relocation plans. As communicated before, Chicago experienced a several-week opening delay. We are working diligently on the revenue ramp, having recently begun marketing to our database, which is building nicely. Admissions over the first 30 days of the soft launch were very impressive at 157,000 admissions. Overall, Casino & Resorts reported revenues of $359 million, a 9% year-over-year increase, and $180 million of adjusted EBITDAR, including a full quarter contribution from the Tropicana and three weeks from the Chicago Temp. Excluding Atlantic City, Tropicana, and the Chicago Temp, EBITDAR…

Thank you, sir. [Operator Instructions] Our first question comes from Barry Jonas, Truist Securities.

Hey, guys, good morning. Can you maybe walk us through the path or ramp you expect in Chicago for the rest of this year and next year? Thanks.

Hey, Barry. I'll let George start off with that question.

Hey, Barry, how you doing? So, Barry, let me just first start with that, we delivered the construction of Chicago Temp early, and we waited for regulatory approval, and then we opened it inside of the budget. So, we're effectively in a soft opening environment and only operating 20 hours per day. We anticipate IGB approval to go to 24 hours. Hopefully, we see that by year-end. Our business is ramping. We're showing week-over-week growth, and our [database] (ph) is going from 0 to 27,000 customers in under two months. And they've not been marketed to at this point because marketing requires IGB approval as well. So, we submitted a pretty robust marketing plan to the IGB and have received approval to launch for the first week in November. So early GDR results reflect strong table games business already. We already rank second in the state in total win, and that's growing rapidly, and that's without any marketing associated with it. So, I expect to continue to ramp this business for the first six months of operations, and based on early results and how positive the customers reacted to the property, I'm feeling pretty good about achieving an annual run rate of about $50 million plus in EBITDAR.

Got it. And do you think -- I mean, you previously talked about $50 million to $60 million for 2024. Is that still possible? I think that was communicated last quarter. Is that still a reasonable outcome?

Yeah, after the first quarter, we should be on an annual rate of $50 million plus.

Our next question comes from Chad Beynon, Macquarie.

Good morning. Thanks for taking my question. I wanted to ask about the guidance. I understand you kind of kept the same bracket from a revenue perspective, bringing it down by $100 million. But in terms of the $2.4 billion, kind of the low end for the year, that would imply year-over-year negative growth versus Q4 '22. Since then, you've added Trop, you've added the Temp, you have some projects, FX is actually a positive from a year-over-year perspective. So, it sounds like -- the quarter actually went pretty well. I understand the Temp was a little bit late in terms of opening, but can you just kind of help us think of a scenario where revenues would come in at that low end, or was that just kind of a simple bracket down, and that might be very conservative? Thank you.

Yeah, Chad, a couple of things, and then I'll allow my colleagues to opine as appropriate. A couple of things come into play. One is obviously the FX exposure we have on some of the currency, but also if you think about where we are in terms of some of our respective markets, there are some competitive pressures we're experiencing that we're going to market our way through where it makes sense. And so that has some implication. But you also got to take into account a little bit of what's going on with Tropicana, where we had it last year for a full quarter with some of the noise around Oakland A's and the implications of what we may do with that property and the lack of investment until we find out the Oakland A's announcement. There could be a little bit of pressure there, but we feel pretty confident that there's some opportunity to minimize that impact on the lower end and make it more so toward the middle or the high end of that range. And so we still feel pretty confident we have some items at our disposal to minimize that impact.

Okay. That's helpful. Appreciate that. And then just in terms of capital allocation, good free cash flow kind of forecast for next year on the core business, and it sounds like a lot of the permanent Chicago CapEx will be in '25, '26. Is there availability to buy back some stock here given the dislocation in the market, or is the cash on hand kind of earmarked for kind of standard cage cash, working capital, and some of the near-term things? Thank you.

Chad, best way I'll answer that is, look, we're always -- our free cash that we have, we're always assessing the best use of that cash. We understand where the market is pricing our equity right now, and it's a very attractive price.

Our next question comes from Dan Politzer, Wells Fargo.

So, one of the areas we get the most inbounds on is obviously Chicago, and I think you guys laid out some -- had some comments on financing kind of TBD, but if there's any way to just kind of help us think about or frame potential avenues that might be possible where you could maybe access additional capital? And just as we think about that CapEx ramp, it sounds like second half of 2024 and 2025 is the bulk of that remaining $1.2 billion of spend. So as you think about the opening, is there any way to do a phased opening or kind of have that not be so chunky in terms of that relatively short timeframe?

Yes, I'm going to let Charlie Diao to answer that on our team.

As you know, we have a $500 million facility with [Luval] (ph) on the land lease, of which $200 million was to make the purchase of the land, and $300 million are available to draw. Obviously, we have not announced this yet relative to our construction -- our path to construction financing, but be assured that's what we're focused on. When we have something to announce, we shall, and you can expect a substantial portion of the rest of the $1.2 billion will be -- there's $300 million from Luval, and there'll be some significant amount for construction financing. So Luval facility is only for the land, so the security for construction and progress would be for the construction lender.

And just pivoting, in terms of the regional portfolio, this is probably a question for George. As it relates to margins, I think you guys called out possible uptake in marketing spend at some of your properties, just given the competitive pressures. How do you think about, broadly, your OpEx structure as it relates not just to marketing, but maybe some of the other pressures that some of your peers have called out, whether it's labor, insurance, utilities, et cetera?

Well, first, let me just tell you that we're very careful with our fixed costs. We focus on variable costs to meet demand. So, when you look at it without Chicago [AC] (ph) and Trop, we're over 38% when comparing the last year total in our total portfolio, and that's -- remember the Trop was acquired mid-Q3. So any additions to staff or in variable positions and -- are targeted for revenue generation opportunities, which is really the way we measure it is based on the return on that investment. So we know how to operate, and we've been able to sustain margins. As a matter of fact, we've improved 10 basis points in margins from Q2 without Chicago and Trop. So, other than labor costs, we're still seeing the market being pretty rational from a marketing perspective, although in some markets they're starting to become a little bit more aggressive. But we really focus on spending for return.

Our next question comes from Jordan Bender, JMP Securities.

I want to stick with the regional portfolio. It seems like the regional consumer is sticking in there, just based off of kind of your commentary. There is some phrase in the slide deck here calling out some sector softness. I was wondering, is that more specific to some of these properties, Atlantic City, Trop, that you were calling out, or is there anything within the overall sector that you're starting to see kind of pull back?

Yes. I mean, it is sector-by-sector. I mean, listen, when you look at the market, we're certainly seeing softness overall in all the markets. However, we're up in 10 of those 13 markets that we operate in from a market share perspective. And we're seeing a little bit of a customer shift. We tend to focus a little bit more on the higher customer segments of our business to where we're seeing a better return on that. But we're certainly getting some softness in the lower 50 minus type segments of our customer base.

Okay. And then just some of my follow up, in Rhode Island, you guys have the database, iGaming just being a higher spend, you stick your customer. I presume that should be in EBITDAR contribution positive state within '24. Is that kind of the right way to think about your guidance that you just gave for your losses within '24?

Rhode Island will be a positive iGaming margin generator. Just one thing on our guidance range, the way I look at it is, although we talk about our guidance, this has the $60 million of North America Interactive loss. That will go to zero. We will make sure that goes to zero. So I look at it with a $60 million swing in that. But yes, Rhode Island, we're very excited by that opportunity. It will be a good profit contributor for us.

Our next question comes from Jonnathan Navarrete, TD Cowen.

My first question is with respect to Casino & Resorts in the third quarter. Margins decreased about 220 bps year-over-year, despite the record quarter revenue. And could you just walk us through the puts and takes of those segments that led to decrease, as well as if they are temporary in nature, how long can we expect them to last for?

Hey, Jonnathan, this is George. So you're referring to a consolidated margin? I just spoke recently, just briefly -- I just spoke a minute ago about how you take out the Trop and you take out Chicago and -- as well as Atlantic City. And we're at the levels that we've always guided the market to. So we're going to have to see what happens with the Trop with the announcement of the A's. So that's continued to be seen what happens there. And as far as Atlantic City is concerned, there are pressures in that market. And that's one of the markets that I talked about. There's a little uptick in marketing spend. We're not going to chase that, but it does cause us to react a little bit from a customer incentive perspective.

Understood. In your slides, you called out that Bally's is taking a share from peers in certain markets. And can you maybe give us some examples of what the company is doing in those markets that are driving that market uptick?

Well, I'm not going to give away any marketing secrets. But I discussed this in previous calls is that we're seeing a better opportunity at the higher end of our customer database, and we're taking advantage of that.

Our next question comes from Jeff Stantial, Stifel.

Today, starting out here, just on the guidance revisions, so full year EBITDAR lower -- $25 million at the low end, $45 million at the high end. If I'm hearing you correctly, it sounds like the only real true incremental changes here are timing for the Chicago opening and the ramp, the changes at the Tropicana ahead of the A's and FX. My question is, first off, am I correct in saying these three are really the only true incremental changes from the last time you updated guidance? And if so, I was hoping -- wondering if you could sort of bucket them off in terms of how much each are sort of contributing to your guidance revisions?

Yeah. You're dead on with your assessment. I won't get into bucketing, but just to keep in perspective for you, the Chicago, we, again, feel very, very good about continuing to build upon that. The Trop, year-on-year, it's one of those things where we just made the decision. Until we get more clarity on what the A's are going to do, it's very difficult to put any more investment in operational change to minimize that impact. And so, therefore, you're seeing some of the revenue shortfall. But you're dead on with your assessment of those primary things contributing to the difference between our last guidance and what we currently issue today in our earnings.

Maybe taking a longer-term view here, right? Chicago, you walked through sort of the path and some of the expected phasing of the construction spend. Tropicana and New York, longer-term subject to decision making processes, whether regulatory or amongst the MLB that are sort of outside of your hands. But I guess my question is this, let's say all three projects -- sorry, Tropicana, you end up going through it with some sort of a development project and then New York doing the license. How much should we expect spend to be, I guess, overlapped between multiple projects? Or do you think there could be a scenario where there's basically no overlap timing wise with any of the spend for the three various projects? And I recognize there's a lot of variables here, but let me know if that question sort of makes sense the way I laid it out.

So, this is Soo Kim, the Chairman. So maybe -- Marcus asked me to take this one. Obviously, we have three large, exciting potential projects, and we're going to need to make sure that we balance all of them. Look, our highest priority is Chicago. But the nice thing is that -- I think what might be missing in people's analysis is that we're actually -- we actually have a number to hit in terms of our spend, which is $1.34 billion, of which we've already spent almost $200 million. And so, the minute that number is hit -- and I think Charlie walked through a little bit of the various ways to finance that. There's -- obviously, we have our land bank. We have the S1 still, so we're going to bring in some minority investors. There's multiple levers for us to continue to find financing there. But at the end of the day, I think there's a generalized like belief that we're going to be subject to unlimited inflation. It's actually almost the opposite. The minute we hit our number, we fulfill the -- that's the main substantive point in the host community agreement with the city, and therefore, we're allowed to open the facility. And let me tell you, we will make sure that, that 4,000-game position facility opens on time and on budget. So that's the main of it. The Trop is actually sort of an interesting situation in the sense that -- again, I think as Marcus has alluded, it's actually caused -- the good news has been -- in the very near-term bad news, because as we've lost -- as we now know that at some point we will redevelop the site, that where we -- when we first purchased it, it was operating…

Our next question comes from Brandt Montour, Barclays.

In Las Vegas, the lease you hold where the Trop is currently, that lease is arguably much more valuable today with the A's pending decision. Is there a world in which you would sell that lease to create liquidity to fund the other projects, buy back debt, or buy back equity? Just curious how you look at that, how you balance that cost-benefit?

Yes, I guess the best way to answer that is I think for the right price, we'd probably unload anything. But if you think about the nature of that transaction, we traded into that deal with a couple of our properties and got a lease that is very attractive and it's traded into a value that is enormous for us right now. And so, whether we develop that ourselves or whether someone presents us an offer that at a minimum valued at $9 million an acre, we'd absolutely entertain that. We have no plans at this moment, but if someone approached us, we'd absolutely entertain divesting of it.

And then, on International Interactive, in the prepared remarks, and I hope I caught this correctly, there's a sort of target margin of low to mid-30%s, and I think you guys mentioned reinvesting or sort of ramping up investments in Asia and maybe another locale. And I guess the question is, is there a -- maybe not, but is there a subtle sort of strategy shift? I mean, I think the story had been sort of cutting marketing margins, had been going up quarter-on-quarter for the last three quarters. And so -- and I think you guys did 35% this quarter. So, yes, is there -- are you going back on offense there? And what would you -- how would you respond to that?

Yeah, thank you. Robeson here. We will spend where the ROI stacks up. We have enough -- as we've been showing you, we've got real control and real grip on these businesses. So you've got your revenues and we'll pull the levers to make sure that we extract them right EBITDAR. Yes, I think we'll hold mid-30%s, but if opportunities come, we'll spend for growth. We want to get the right growth, but we want to get the right EBITDAR at the back. I'm very happy with where International Interactive is. We should remember that these are highly competitive, mature markets, and we continue to grow share. I believe there's many mature markets in the world out there where we're showing that we can also grow share, such as New Jersey, such as Pennsylvania. I'm very, very positive with where we are and we're really showing that we have a grip on our cost structures. Just to add there, we announced the headcount reduction because we've gained confidence with White Hat and Kambi providing a platform for us in North America, which will be a better product offering in the long term for us. That will result in approximately a 300-person headcount reduction. That will make us a stronger company, but also improve our margins too.

Our next question comes from Ricardo Chinchilla, Deutsche Bank.

I was wondering if you could provide some color regarding the funding of the hard cost for the Chicago project in 2025, perhaps including the total amount needed, although being a rough estimate, the alternatives that the company has identified, like doing additional say lease by transaction at the restricted groups, sending the money, looking for a REIT partner, what's the preferred funding source that the company at this point has identified, and perhaps some color on the timing for a financing transaction? And if you could also please confirm that if the company decides to raise money at the restricted group, do you have plenty of avenues to do that, that you have enough restricted payment capacity and investment capacity to send money to the unrestricted sub? Is that capacity in excess of like $300 million?

This is Charlie. Yeah, I think you asked about 15 questions in that list. But fundamentally is -- yes, we know what our covenants are, we know what our contractual obligations are, and to the degree that we are actually leveraged below a certain level, we have unlimited room to distribute cash. However, if we get more levered, obviously there are certain limitations. In terms of the capital plan, we told you that we have $300 million committed unused from the existing facility. We also explained that 2024 is pretty limited in terms of just demolition and site prep. That 2025 and 2026, this was your question in terms of phasing, is where we do the construction above ground. And then in terms of construction financing, you can take certain ratios and so forth. The REITs are very valuable partners with us in terms of -- in our sector. And you've seen many of them provide different forms of construction financing. Because ultimately, we think that Chicago is an asset that everybody would aspire to own in the REIT world. So, I think you've got the hints in terms of where different sources of financing. In addition, we do have a land bank within our existing estate of probably $1.1 billion to $1.3 billion in value, depending on when we choose to monetize that. So we have -- as Soo mentioned before, we have a lot of levers. But we don't really need the money until 2025. This is 2023. And then in addition, we also have a minority equity raise that probably sometimes in the first quarter -- or more like second quarter. So there are a lot of pieces that will fall into place. Unfortunately, you just have to be patient.

And if I may go with a follow-up, can you please provide the covenant adjusted EBITDA for the quarter and the restricted group leverage for the LTM period?

No, but we -- I think we said we are in the force.

We have no further questions at this time. I would now like to turn the call back over to the speakers for any additional or closing remarks.

Okay. Thank you, everyone, for all your questions today. We'll speak to you again soon, and we'll keep you apprised of any significant movements coming up in the future. I'm very happy with our performance, and we'll keep on pushing forward. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.