Bally's Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 15 speakers on the call.

Operator

Good day, and welcome to the Bally's Corporation Second 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. Please be advised that today's conference is being recorded. I'd now like to turn the call over to Jeff Chalson, VP of Corporate Development and Strategy for Bally's.

Operator

Please go ahead, sir.

Speaker 1

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.valleys.com. With me on today's call are Chief Executive Officer, Robison Reeves George Papineer, Valley's President Marcus Glover, Valley's Chief Financial Officer Jaymin Patel, Valley's Vice Chairman and Charlie Diao, Valley's Treasurer. Before we begin, we would like to remind everyone that comments made by management today 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.

Speaker 1

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. Reconciliations to the most comparable GAAP financial measures We do not provide a reconciliation of forward looking non GAAP financial measures due to our inability to project non recurring 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 Robison.

Speaker 2

Thank you, Jeff, and hello, everyone. This quarter, saw Valley is making strides with new initiatives and achieving project milestones, setting a strong foundation for 20 23 and beyond. Our core casino and resorts business produced record setting second quarter revenue and EBITDA results with improving margins. International Interactive remains solid, led by the U. K, which also produced record setting second quarter revenue results, driven by market share gains.

Speaker 2

North America Interactive iGaming continues to ramp up positively as we see the benefits of Games' technology taking hold. We have made significant progress transitioning Bally Bet onto the Kambi and WhiteHat technology platforms, which is on track to roll out this summer. We intend to be live in 3 states by summer's end and at least 7 states and 4 retail locations, 2 are already operational by the end of 2023. With that in mind, we are pleased to reiterate our full year earnings guidance. We expect somewhat better performance from our core casinos and resorts and international interactive businesses versus our original expectations, slightly offset by an expected additional $10,000,000 in costs in North America Interactive at the midpoint of our range relating to our Pennsylvania iGaming launch, the transition of Bali Bet and some investments we have made in our omni channel, including Bali Live.

Speaker 2

Though we expect some added development cost outlays in second half twenty twenty three, the spend is expected to reduce as we grow and scale the North America Interactive business. Our confidence in our guidance It's premised on our core businesses remaining strong. Our growth projects coming online and our North America interactive iGaming business Continuing to ramp up. Earnings aside, once again, we have had a very active quarter in terms of our continued evolution of our company. We welcome the new CFO, Marcus Glover and a new Corporate Treasurer, Charlie Diao to our management team.

Speaker 2

Jayman Patel, a long serving Bally's Board member has also seamlessly stepped into the role of Vice Chairman. Each has been a tremendous addition to Vale's and are working vigorously at integrating themselves into the company, improving our culture and our workflows. I remain deeply impressed with our global team and the progress we continue to make integrating Bally's 3 businesses. On an operating basis, we've seen several positive catalysts with long term company impact and continue to advance our announced development projects. As you all know, we announced a deal with the Oakland A's of Major League Baseball And our partners at GLPI for the A's to relocate their stadium onto 9 acres of our Las Vegas Tropicana site.

Speaker 2

We couldn't be more excited regarding this transformational one of a kind development project along with the option value and long term This announcement represents and has created for our company. While the planning process is only in the beginning phase, We'll share additional details as they emerge over the next 18 to 24 months. We closed on the acquisition of Tropicana in late September of 2022 and have already materially increased the value of this asset, a testament to our management team's creativity and ingenuity. Next, we have made tremendous progress on the development of our temporary casino at the Medina Temple in After receiving preliminary suitability from the IGB in early June, the project remains on schedule for a September opening, which is estimated to generate $50,000,000 to $60,000,000 of EBITDA in 2024. The feedback we have received from those who have toured the development has been quite positive.

Speaker 2

As for the permanent facility, We were successful in negotiating a deal with the Tribune Company to vacate the building by mid-twenty 24, so we can begin the development of the casino at that time. We continue to expect the property to be open in 2026. We remain confident in the significant pent up consumer demand for this project and eagerly anticipate generating results. In late April, we completed our renovation and expansion of our Marquis Twin Rivers property in Lincoln, Rhode Island, and we are progressing towards completion of our Kansas City properties transformation. Both capital projects should be significant contributors to our organic growth for years to come.

Speaker 2

Additionally, the smoking ban that was implemented in Shreveport, Louisiana in 2020 Was repealed beginning in June. We believe this will be an incremental driver of performance for the property As its competitors just across the border in Bossier City do not have a smoking ban. When the smoking ban was initially implemented, business fell Over 20% from its peak and has yet to fully recover. As for the UK white paper, which was released in late April, We continue to review the proposed measures and will work constructively with both the government and gambling commission to find an effective solution, which ensures that reforms are appropriate and guarantee safe and sustainable future. As we discussed on our last earnings call, We're in a strong position as we've been preparing our business strategy and compliance for some time.

Speaker 2

We embrace regulation and recognize that gaming is a public Private Partnership. At its core, our international interactive business is performing very well, especially in the U. K, where we continue to gain incremental market share. The regulatory environment in the U. K.

Speaker 2

Challenges smaller competitors, causing some to leave. This allows compliant larger entities to consolidate the market and expand their reach. Next, we launched iGaming in Pennsylvania in early June. While it's still quite early, we are pleased with the initial results. We believe our early performance in PA is a result of strong brand recognition and database.

Speaker 2

We are only scratching the surface of our player database omni channel opportunities. Further, the Rhode Island legislature Passed a bill to legalize iGaming in the state, naming Bally's as sole provider. This is a very positive development given our foothold in the state And our seasoned database, we thank the Rhode Island legislature for being such great partners. It is anticipated that we'll launch in March of 2024. Heading into 2024, we are also excited about Prospect of launching the Bally's brand and online sports betting internationally.

Speaker 2

Post our Bally Bet rollout, we'll be back on a path to diversify our revenues and EBITDA streams with ample cross sell opportunities between our retail and digital businesses. This internal support our vision of becoming a premier full service vertically integrated casinos and resorts, iGaming and online sports betting company, allowing us to leverage our Bali's brand globally. Turning to our operating segments quarterly results. The casinos and resorts segment continues to trend well even with certain properties facing incremental competition as our core casinos and resorts Customer remains resilient. While we're keeping a close eye on spending trends and the health of our consumer generally, We are pleased with our overall portfolio.

Speaker 2

We generated record 2Q revenues $333,000,000 that's up 11% year on year and adjusted EBITDA of $111,000,000 That's up 12% year on year as George and his team continue to drive performance. We are seeing the benefits of the property improvements, Reporting systems, centralized procurement and cost controls implemented throughout the portfolio taking hold. Importantly, as we discussed earlier this year, our core portfolio's near term CapEx cycle has peaked several of our growth projects Have come to or nearing completion. We expect to continue delivering consistent operating performance from this call. International Interactive had a strong second quarter and is off to a robust 1st half of the year with continued algorithmic marketing optimizations taking place.

Speaker 2

The UK business continues to be the main driver of our performance, Growing 12% in the second quarter, well ahead of the market. The formula of ARPU up, FTD is up, while CPA is down significantly, Continues to play out and drive performance. In Asia, we continue to look for stabilization after several months of increased volatility and performance. We've implemented changes and are working diligently to address this. International Interactive margins have settled in the low mid And we believe we can sustain margins at or above these levels.

Speaker 2

This is inclusive of our plans to reinvest in our core UK and Asia businesses. And we continue to see growth opportunities in Europe, Asia and rest of the world with a focus on Brazil, including launching the Bally's brand and OSB Turning back to North America Interactive. We remain keenly focused on growing our iGaming footprint. Our share in New Jersey continues to creep higher since surpassing 4% in the Q1, and we remain on track to achieving our 6 to 8% longer term share goal. We're working on building our presence in Ontario and we're excited about the results we've seen thus in Pennsylvania since launching in early June.

Speaker 2

Overall, our iGaming business is generating positive returns and we are optimistic. We also look forward to the recently passed iGaming legislation in Rhode Island, a potential long term game changer for our iGaming business. In summary, our goals for the remainder of 2023 and into 2024 include: Open the Chicago temporary casino in September, grow North America interactive iGaming market share profitably, Roll out Bally Bet beginning this summer with our new technology partners, harness our omnichannel data capabilities And grow the Bally's brand globally, including OSB. In addition to our growth initiatives, It is important to emphasize that our team remains focused on growing our revenues and adjusted EBITDA for our core casinos and resorts And our International Interactive segments and again are reiterating our guidance for the full year. Before turning to Marcus, I'd once again welcome him to the company.

Speaker 3

Thanks, Robson. As you all know, this was my Q1 as the CFO of Valley's after spending nearly 2 decades in the industry in a variety of leadership positions. A couple of months into my tenure, I have reviewed each of our business segments and had the opportunity to meet some of our investors. As an organization, we remain focused on integrating and improving our operating and financial performance, managing our development pipeline and growing our international and domestic iGaming businesses. Later this summer, we will also begin rolling out our BallyBet OSB business in the United States.

Speaker 3

We have several amazing new opportunities ahead of us and our team is centered on executing against these priorities. For the quarter, we generated record second quarter revenues of $606,000,000 which is an increase of 10% year on year, Adjusted EBITDA of $161,000,000 and adjusted EBITDA of $130,000,000 after accounting for rent expense of 31,000,000 Our adjusted EBITDA margin of 26.6 percent and our adjusted EBITDA margin was 21.5%. We are pleased with how our casino and resorts portfolio performed with strength at our Rhode Island and Kansas City properties offset slightly by some headwinds experienced between Atlantic City, in Las Vegas and Evansville, which we are working through. Irrespective, we are pleased with the resiliency and performance of the Casino and Resort Overall, Casino and Resorts reported revenues of $333,000,000 which is an 11% year on year increase and $111,000,000 of adjusted EBITDAR, which is a 12% year on year increase. Excluding Atlantic City and Tropicana, which are lower margin properties, EBITDA margins were a solid 39.4 percent for the core portfolio.

Speaker 3

Including these properties, EBITDA margins were 33.3%. International Interactive generated revenues of $248,000,000 $84,000,000 of adjusted EBITDA at a 33.9 percent margin. Results were driven by impressive strength in the U. K, a result of our content marketing optimizations. The U.

Speaker 3

K. Was up a robust 12% for the quarter in The dollar and British pound while international increased 6% overall. We will continue to invest in the business while also exploring opportunities in other geographies as we had As we have discussed in the past, there is opportunity for responsible growth and to expand the Bally's brand and OSB capabilities throughout these markets. Our long term International Interactive adjusted EBITDA margin target remains in excess of 30%. North America Interactive generated revenues of $25,000,000 and negative $18,000,000 of adjusted EBITDA.

Speaker 3

We're very happy with our performance in Igaming, particularly in New Jersey. New Jersey gross profit contribution is approximately a little over $1,000,000 a month and growing. We continue to work on building out our presence in Ontario, and we launched in Pennsylvania in early June. The initial results have exceeded our expectations, and we are highly The launch of Igaming in Rhode Island in March of 24, where we will be the sole provider. Our Igaming business is generating Positive contribution margins, which we anticipate will continue to strengthen.

Speaker 3

Turning to OSB, as Ropes had mentioned earlier, we incurred additional costs in the quarter of Approximately $7,000,000 versus Q1, including our launch in PA for iGaming. We look forward to the transition of ValleyBet and the rollout onto our technology The rollout schedule will begin in 3 states this summer and at least 7 states We also intend to leverage These partnerships to launch OSB in the UK and in Europe in 2024. Additionally, we made small IP content related investments to minor league baseball and other properties to build out our Valley Live omnichannel initiative. We believe Valley Live will prove to be a solid customer acquisition tool on Corporate expense for the Q2 came in at $16,000,000 This remains slightly elevated as we are still managing through some short term of a few instances mentioned, we haven't seen a significant change in consumer spending patterns at our casino and resorts. That said, we are keeping a close eye With that in mind for the company overall, we are maintaining our guidance for 2023.

Speaker 3

Recall our forecast is for us to generate $2,500,000,000 to $2,600,000,000 in revenues and $665,000,000 to $700,000,000 in adjusted EBITDAR. This now reflects a loss in North America Interactive of $50,000,000 to $60,000,000 a $10,000,000 increase at the midpoint. We expect some additional development cost outlays in the second half of twenty twenty three, though the spend will reduce as we grow and scale the North America Interactive business. Our full year estimates are driven by our growth projects within Casino and Resorts and International Interactive Businesses remaining strong as we are confident in our global business. This begins with the Chicago temporary facility opening in September and the completion of our Kansas City expansion project later in the Q3.

Speaker 3

Additionally, we will benefit from a full quarter of our Twin Rivers renovations and expansion as well as recently announced smoking ban reversal in Shreveport, Louisiana. This also considers our belief that the white paper released by the U. K. Government won't have a material impact on our international active financial results and that FX will remain constant. We are also maintaining our 2023 capital expenditure guidance of $160,000,000 excluding Chicago, with maintenance CapEx at casinos of about $50,000,000 and growth CapEx at casinos of about $70,000,000 During the quarter, we repurchased approximately 748,500 common shares for an aggregate purchase price of $10,700,000 At the quarter's end, shares outstanding were about 45,600,000 and we have incremental warrants, options and other dilution of approximately 13,100,000 shares.

Speaker 3

58,700,000 shares outstanding is the right way to look at our capital structure. We have more than $184,000,000 of cash on our balance sheet. The reduction in cash versus last quarter is a result of us restricting cash for the Tribune payment and $3,200,000,000 of net debt. Lastly, I would like to reiterate my enthusiasm to be part of the Bally's team. The pipeline of projects we have ahead of us in all three of our operating segments are Exciting and aligned with our strategic direction and focus.

Speaker 3

Casino and Resort Development and Expansion anchored by our Chicago project, Enhanced value we have created in Las Vegas regarding the Oakland A Stadium transaction, our iCasino growth trajectory Particularly in New Jersey, Pennsylvania, Ontario and now Rhode Island in addition to the rollout of ValleyBet, the continued consolidation and rationalization International Interactive, particularly in the UK, and continued focus on our balance sheet through maximizing our working capital and addressing the untapped real estate value Thank you all for listening and let's now open up the call for Q and A. Operator?

Operator

We'll take our first question from Barry Jonas with Truist Securities. Please go ahead.

Speaker 4

Hey, good morning, guys. Actually, maybe I'll start with Marcus. Can you talk a little bit about how your transition 1 quarter end is going? Do you have a sense what's on track in your head, if there are some things you may want to adjust?

Speaker 3

Yes. Thanks, Barry. It's been A whirlwind and exciting at the same time. Early, early indication is that, I'm joining a very, very impressive team, As you can see in the results, both on the C and R side as well as the international interactive side, we continue to exceed our Expectations and perform and the teams are working very hard to not stay static in that performance. And so what George and the casino and resource team has been able to do on the C and R side With the margin profile that you guys see in our results and continuing to maintain focus on our development pipeline as well as what Robeson and the team has done overseas, Specifically in the U.

Speaker 3

K, it's a quite impressive team and we continue to prove we get the most out of the assets we have to manage. And so very impressed and Remain excited to join this team.

Speaker 4

Great. So I guess with that, I'm curious how you guys are thinking about capital here specifically the path to deleverage. You've got the Chicago permanent spend Coming up and then wanted to get your thoughts about how Tropicana spend weighs into that path to deleverage. Thanks.

Speaker 3

Yes, I'll start off with that and then anyone can chime in. I think right now, Barry, our focus is on our development pipeline with Chicago anchoring that. We feel pretty good about our pathway and some of the early diligence we perform on moving that project forward on a permanent standpoint. As it relates to Tropicana, that pathway is pretty far out, and we feel confident as we move forward with the Chicago perm that we'll be able to solve for Tropicana not just in the proper development, but also in the underwriting of that project as well. But we remain encouraged with the optionality that that project provides us Right.

Speaker 3

They're on probably the most visible and most traffic corner in the Las Vegas Strip.

Speaker 4

Got it. And then if I could just squeeze in one more. IGaming in Rhode Island, I think really exciting, should be interesting See in the sense that you're the only land based and online operator in the state. But can you maybe talk about how you think about the potential for omni channel driving higher spend levels from customers, but also potential risks around online cannibalizing land base. Thanks.

Speaker 2

Yes, I'll take that. Everywhere we've launched and we've seen iGaming alongside Casinos and resorts, it's just a different form of engagement. We've seen spend layering on top of one another. This protects us in different times as well. Biggest growth times if there's, call it seasonality, big storms or whatever in bricks and mortar, we'll definitely see significant growth into iGaming.

Speaker 2

It won't cannibalize. It's additive. People engage both at home and they socialize more in the retail establishment. So we see this as totally incremental. We are the sole operator.

Speaker 2

I'm very excited about Rhode Island. I think it will be material in driving our iGaming performance and actually North America Interactive Business.

Speaker 4

Great. Thanks so much.

Operator

Thank you. We'll take our next question from Jordan Bender with JMP Securities.

Speaker 5

Great. Thanks for taking my question. In New Jersey, your market share in I. D. Has been sitting kind of in that 4% range maybe year to Can you just kind of bridge us to how you get to your targeted 6% to 8% range?

Speaker 5

Does it come from the technology side, the product offering? Or do Do you need to kind of get a little more promotional within that market? Thank you.

Speaker 2

It's going to be driven by How much we can utilize our retail casino database, so more omni channel, but also significantly it's a product offering upgrade. So the addition of sports will bring new audiences in. As we know, people bet on sports, but they always bet on iGaming too. So we see that as the funnel. As we introduce sports into New Jersey, we'll see our share grow.

Speaker 5

Great. And then for my follow-up, it's been a little bit of time in Atlantic City since we've seen what that property Can you generate just given the CapEx in COVID and your takeover of that property? As we hit the high season here during the summer, like How should we think about that return? And kind of how did where do we sit in the timeline of the full return on that property?

Speaker 6

Sure, Jordan. This is George. I'll take that. Since we relaunched on Memorial Day 2022, we've had a good summer in 2022 And we continue to ramp the property through the first half of twenty twenty three, beating all our expectations. So we're feeling good to see Profitability in 2023 and just in July, we're going to take July, it was our record month since the acquisition of Hello Atlantic City in both revenue and profitability.

Speaker 6

So we're feeling good about it.

Speaker 5

Great. Thanks, George and thanks for the questions.

Operator

Thank you. We'll take our next question from Dan Politzer with Wells Fargo. Please go ahead.

Speaker 7

Hey, good morning, everyone, and thanks for taking my questions. First, I want to dive a little bit deeper into North America Interactive, obviously, expenses ticked a little bit higher in the second quarter. It looks like you're just flowing that through to your guide. But I guess as we think about the back half of this year Into 2024 with the focus on Igaming Rhode Island coming on, the more continued investment in New Jersey, How should we think about, I guess, the EBITDA ramp? And maybe if you could break out, is sports betting profitable today versus do you think it could be profitable?

Speaker 7

Or do you really look That more is a funnel for iGaming. Thanks.

Speaker 2

I look at sports betting much more as a funnel. We will be Prudent with our investments when we go into sports. With regards to our estimates on North America Interactive increasing, Essentially, our balance sheet cash flow spend comes down sooner. The P and L expenses will come down, but it's not in the same linear way. Yes.

Speaker 2

We absolutely will be prudent in North America Interactive, but are very confident about the iGaming opportunities. Pennsylvania has performed well from a launch perspective. We will balance that out from a tax perspective to make sure that we Throw off good profitability and time. We're very good in mature, high tax, heavily regulated markets As you see from our performance in the U. K.

Speaker 2

So I feel very confident that we'll be able to control and guide North America Interactive. We have significant levers to pull.

Speaker 3

Yes. And just to add to that, Rosen teed it up well. I think sports is a great launch to engage a customer Our customer base, but we will be very prudent and optimize marketing expense as we move forward. Obviously, we have some media partnerships And some rev share agreements that take shape in that segment, but we will be very, very prudent as we move forward with the focus Keenly on iGaming and the upside in those markets, specifically New Jersey, Pennsylvania and then soon to be Rhode Island.

Speaker 8

Got it. And then for

Speaker 7

my follow-up, if we could touch a little bit on Chicago. How do you think about kind of the cash flows this year, next year And into the coming years, coming up leading up to the build out of the permanent facility. And I guess on the back end of that, How are you thinking about the possibility of doing a sale leaseback for that property and maybe bringing back into some of that capital, just given that's something you've talked about as it relates to your other owned properties within the portfolio.

Speaker 3

Yes. To answer your question, maybe not in order, but obviously, sale leaseback with our unencumbered real estate remains an option. We're exploring all options. And so we'll continue to engage along that path pretty responsibly. In terms of how we think about Coming up with a firm decision on that, obviously, hard construction doesn't begin until Q2 of next year.

Speaker 3

Tribune doesn't get out of their space until July of And so, as we get a little bit closer to that day, we'll have more definitive answer for you around CapEx and how we see that playing out in terms of underwriting.

Speaker 7

Thanks. And just on terms of the Cash flows this year, next year for Chicago, any kind of ways to think about that?

Speaker 6

Yes. This is George. I'll give a little guidance On that, obviously, we are continuing to be very focused on the opening of the temporary casino and that looks like it's going to be in September. We've actually increased the scope of the original temporary projects, so we feel there's nice upside to that. I think we're out there with about a $50,000,000 run rate.

Speaker 6

We're increasing that to $50,000,000 to $60,000,000 annually. And hopefully there's some Continued ramping of that as we build towards the opening of our permanent facility. Yes.

Speaker 3

And just right now, we have baked in. Obviously, we're I think a little delay from what we communicated to you last time on opening, but you could probably for the rest of this year estimate out Somewhere between $3,500,000 to $5,000,000 a month in terms of impact once we open in the Chicago

Speaker 7

Got it. Thanks so much.

Operator

Thank you. We'll take our next question from Chad Beynon with Macquarie.

Speaker 9

Hi, good morning. Thanks for taking my question. Robison, I wanted to ask about International Interactive, the strong 12% growth that you posted in the U. K, you outlined kind of what's going on in the market. You do have some tough comps In the back half of the year, just how strong the growth was in that region in 2H 'twenty two.

Speaker 9

Can you help us think about seasonality, what's going on in the market, if you still have additional tailwinds from what you talked about from The fragmentation from the white paper, just trying to get a sense if this can still be a mid to high single digit growth market going forward? Thanks.

Speaker 2

I have confidence that trends will continue. We're still taking share from smaller players and actually some bigger players too. We'll still see the same sort of low to mid-30s as margin. The consolidation in the market will continue to Track on and we're seeing high volumes of new customers coming into us, which is a great tailwind, which will boost the sport. We don't see that trend going away.

Speaker 2

The introduction later of sports betting, as I described for North America Interactive, will widen the funnel of acquisitions. So I see Genuine growth in a mature market, as I've said, we were great mature, high tax, heavily regulated in competitive markets. That is true For Interactive, that is true for bricks and mortar. So I'm very confident in our future in our core markets. They're very robust and we'll build out other growth opportunities.

Speaker 9

Thank you. And then, Marcus, on The Lincoln option, I know that you extended it with GLPI from 2024 to 2026. Can you just help us think about The thinking there, I guess, if in terms of when you could potentially transact, As you mentioned, you have a lot of things going on, a lot of growth and maybe it's not the right timing, but just provide a little bit more color there would be helpful. Thanks.

Speaker 3

Yes. The progress with those discussions continue to remain active. Obviously, we have a great rapport with Our regulatory body here in Rhode Island, and we're in discussions now with them about timing of when that makes sense. And so that remains a viable option for us that we will continue to engage on and at the right time, we'll have something to communicate to you guys about that transaction.

Speaker 9

Great. Appreciate it. Thank you very much.

Operator

Thank you. We'll take our next question from Jeff Stancho with Stifel.

Speaker 8

Great. Thanks. Good morning, everyone. Starting off on the brick and mortar business. Marcus, you mentioned some headwinds for Atlantic City, Tropicana Ken and Evansville in the prepared remarks.

Speaker 8

I think George covered Atlantic City a bit earlier during the Q and A, but I was hoping you could just expand a bit more on the Trop and Evansville. Just What's going on at those two properties? How much of an EBITDA headwind as it's proved? And kind of what are the efforts underway to get those back on track?

Speaker 3

Yes. I'll pass to Joe. I'll start off with some remarks and then pass it over to George. I think in Evansville, it's just new competition, heavy competition within the Hour or so drive in radius of that property. And in Trop, as you guys can probably imagine with the announcement of the A's option, there's probably a little bit of a Knock on effect in terms of uncertainty as it relates to customers and employees alike.

Speaker 3

And so the team is doing its best to make sure that we Show strength and show certainty as much as we can in that market, but I'll let George add any more color commentary to that.

Speaker 6

Hi, Jeff. Thanks, Marcus. The only thing I'll add to that is in Evansville, the competition really started Arriving in that market about 2 years ago, we've had some HHR competition in the neighboring state and Churchill just recently acquired the Ellis Park, Making some improvements there, but it's just been some erosion around the edges and we've been working to mitigate that On the expense side of our business, so our margins are actually improving. So there's a slight impact there and we'll retool on how we approach the competition in that market. Tropicana, listen, we acquired that towards the end of last year.

Speaker 6

We're actually ahead Of what we anticipated we would do there ahead of last year as well. And we ran into a headwind, which is really an announcement Of the aids coming to our site, which obviously is very positive from a valuation perspective. But we're going to Focus on the timing as it relates to the A's actually arriving. I think they have one more hurdle. So we're waiting on them to see what their actual timing is and we'll just react to that and manage the property accordingly up until closure.

Speaker 8

Okay, great. That's helpful. Thanks, Marcus. Thanks, George. And then sticking for my follow-up, sticking with the brick and mortar business, I was hoping you could Provide a bit more of an update and expand on the work being done around asset integration and cost containment spearheaded by J.

Speaker 8

A. Min. Can you just Talk through maybe some examples of the more backfill changes being made and if you could also frame out what you see as the eventual upside here, That would help as well. Thank you.

Speaker 3

Yes. One of the early parts of my assessment is just understanding where the right Opportunity is for us, one of the phenomenon in the industry is this movement towards shared services and centralization. I think in my experience, having come from environments where that's been somewhat successful in other places and probably left some opportunity by centralizing too much, We're approaching this very carefully to make sure that we don't lose the very essence of what's made Valley successful thus far. George and team do a phenomenal job on the brick and mortar side of getting maximizing the operational performance At every property we have, as Robsen teed up earlier, we operate in some of the highest tax jurisdictions and some of the most difficult competitive circumstances and we continue to Some of that is somewhat fluid right now. We expect to narrow that down and focus and opportunity, But the biggest upside is ensuring that the properties are able to maintain its entrepreneurial spirit and its nimbleness as they can take advantage of opportunity real time by having the right people in place at the properties.

Speaker 3

We feel good about the opportunities of dialing down some of our corporate expense. And we'll continue to manage that with a keen eye and be very responsible, but make Sure that we allow our properties to do its best work by leaving things that, makes sense to leave at the property.

Operator

Question from David Katz with Jefferies.

Speaker 10

Hi, morning everyone. Thanks for taking my questions. One of the observations on the digital side for sports and iGaming also is that the U. S. Market has Then kind of transitioning from spending being a driver of business to product, being a driver of volumes.

Speaker 10

Can you just talk about what you see as your key strengths or key competencies that will help you be successful In that context and or if you disagree.

Speaker 2

Yes, I totally agree that it's about product, Right. Product in the end will win out. But what is a product, right? It isn't just about having a sports betting offering or the most games available. It's actually about how you utilize your data platforms.

Speaker 2

Our essence is about how we can analyze, understand consumer needs best And integrate that into a product experience. That is the true capability and that's what's driven growth historically for all of our interactive business because then you can spend more effectively to acquire exactly the right consumer And retain that consumer by communicating to them in their language with the right rewards for their optimized level. That is why we have accepted that, you know what, let's outsource our sports betting product, but we'll integrate our intelligence And our brainpower to make sure it's the best possible experience for each user.

Speaker 10

That really sets up my follow-up question, Which is how you're thinking about the aspects of the value chain you ultimately would like to own versus outsourcing And where you see the advantages one way or the other?

Speaker 2

Yes. My view is Before you reach scale, a lease model is very sensible, have variable cost. As you grow to scale, it makes sense to actually have fixed costs. I see the greatest value in our offerings around omni data, massive believer in data. That's my entire background.

Speaker 2

And I know that you can That's how you win in the long term. That's how you get the best margins out of your business. I'll absolutely own our data so So we can make sure that we drive the best possible marketing through any platform that we utilize throughout our business.

Speaker 10

Perfect. Thank you very much.

Operator

Thank you. We'll take our next question from Lance Vitanza with TD Cowen.

Speaker 11

Hi, thanks guys. Lots of moving pieces in the quarter, but virtually all of the shortfall in adjusted EBITDAR, At least relative to our model can be attributed to this incremental investment in North American Interactive. And I find that Surprising given we've recently had a lot of conversation around outsourcing components of that business and really restructuring leaner and meaner. And so I'm just wondering, could you help distinguish between where you're investing in NA Interactive and where you are scaling back. And then again, I think someone asked this earlier.

Speaker 11

I don't think I heard you answer, but When are you targeting the segment to get back to EBITDA positive? Thanks.

Speaker 3

Yes. The way I would answer that is our investment has been fairly intentional in a couple of areas. One is in Our content for our Valley Live platform, which we think is very important, and then making sure that Some of the overhang from prior platforms we removed from our system. And so some of that has been write off, but Content and investment in our iGaming, with understanding the variable component of our Kambi WhiteHat Platform is where we're focused right now. And so in terms of getting the profitability, Hard to say that we'll get there by the end of this year, even into next year.

Speaker 3

We expect to reduce our loss significantly, by the second half by Q2 next year, but the focus is on continuing to build up this platform and our infrastructure so that we can be strong in the iGaming space And honor our strategic partnerships, immediate partnerships, commitments.

Speaker 11

Fair enough. One quick Second question for me. The share repurchase program, I noticed they bought some stock. Presumably, you also have flexibility to retire debt early. Is that The case and your bonds are yielding over 11% and you could capture some meaningful discount there.

Speaker 11

Are you able to be in the market and repurchase those bonds if you so Choose or does your bank debt prohibit that? Thanks.

Speaker 3

Yes, we're able to, but I think right now our priority as it relates to moving forward is our Our development pipeline and committing to getting Chicago online, we'll balance those priorities appropriately, whether it's equity, repurchase This is in or debt retirement. But to answer your question in short, yes, we are.

Speaker 11

Thank you very much. Fair enough.

Operator

Thank you. We'll take our next question from Riccardo Chinchilla with Deutsche Bank.

Speaker 12

Hey, guys. Thank you so much for taking the question. I was wondering if we could start with Housekeeping items, can you please remind us the covenant for this quarter on an LTM basis, the regulatory leverage And how do it compares to the covenant? And also, can you please confirm if you have used restricted payment capacity For, you know, the restricted cash that is, you know, allocated for the transaction with, you know, in Chicago, Just to confirm that you guys didn't need to use our restricted payment capacity.

Speaker 3

I think I heard the first part of your question was around. I'll defer to Charlie Dow on this question.

Speaker 4

All right. Mark, yes, I'll be happy to

Speaker 11

Can you hear me?

Speaker 6

Yes.

Speaker 13

Okay, great. So in terms of regulatory covenant For Rhode Island, we're well within the 5.5 times or approximately 5 times. And with respect to we have not availed ourselves of restricted payment basket for investments in Chicago. We have I think that those were the 2 questions that you asked.

Speaker 12

Got it. Thank you. For my follow-up, given that you guys have mentioned that you could probably go to market To get a loan to fund the construction, is it safe to say to assume that that's something that you guys would do perhaps in the first half of next year or do you guys have any other plans for the loan, just to fund these incremental properties? Yes.

Speaker 13

I think conceptually, obviously, the Chicago is in the unrestricted group. So we are looking at You know, different forms of financing that project. And given the as Marcus mentioned before, the trip isn't out of there until July. The hard costs We'll start in preparation for maybe the second quarter at the earliest and then thereafter in the back half of the year. So we will intend to finance that on a standalone basis.

Speaker 13

That's the plan, but we have time in order to do that. Obviously, Specific construction plan that's in terms of timing of the spend and so forth. So that's a 2024 issue.

Speaker 12

Got it. Thank you so much for taking my questions.

Operator

Thank you. We'll take our next question from David Hargreaves with Stifel Financial.

Speaker 14

Hi. The Twin River expansion, I'm wondering if you could give us some early color on what you're seeing and if there's any kind of reaction in In terms of radius that you're attracting or frequency or returning customers, anything you could share on trends since that was finished?

Speaker 6

Hi, David. This is George. The expansion focused on when adding what I'll call key elements To retain and or retract slot and more so table games business from Oncor. So it's really skewed towards Directing an influence towards that customer. And I got to tell you, the early results are a little better than expectations.

Speaker 6

We've actually you'll see it in the reports, we've actually increased slot business by a little over 4% since the expansion. And table games, which is really our targeted focus, were up over 7%. So we're feeling good about those results And we're looking at this as an incremental incremental to what we anticipated earlier.

Speaker 14

That sounds great. Marcus, welcome. When we first met, you were running the MGM property in Detroit. And, all of the temporaries have done very well, and all the permanents kind of struggle. And that was with a lower threshold of investment and a lower tax rate.

Speaker 14

I'm just wondering if you could tell us, you know, what you see with Chicago that's different or similar from your experience there. Thanks.

Speaker 3

Yes. Sure. Happy to. Probably a little bit of correction, never Detroit. You probably referenced in Cleveland when we opened there.

Speaker 3

But I think a couple of differences. One is, obviously, the Chicago market is much larger In terms of the penetration opportunity we'll have at our disposal. And so if I had to separate between what We think we'll be a very successful temporary casino and how we think our prospects will play out for the perm. We feel that we'll appropriately right the perm such that we can leverage Chicago as an anchor city to generate some tourism and national visitation. But obviously within probably a 50 mile radius, you're probably looking at actually much less than that 20 mile radius.

Speaker 3

You have several million I'd say 2,000,000 to 3,000,000 people to penetrate from. And one of the things we were talking through earlier in the week is just our existing database in the Chicago market that It's part of the Bally's family that we'll be able to penetrate and speak to immediately. And so we feel pretty good about the prospects Of both, the temporary facility as well as we migrate toward operating the permanent facility. We were fairly, I think, conservative with where we think that performance will be. And we've obviously looking at what George and the team has been able to do with Properties that don't fit the development mold of what we'll build in the Chicago perm, I feel pretty confident that these guys will be able to use That facility and maximize its potential.

Speaker 14

Okay, great. And then lastly, in the presentation, it looks like you guys have Change the format for the International Interactive segment reporting. I just want to say the I found the additional Transparency in detail, I thought that was very helpful. I hope you guys will consider putting it in going forward.

Operator

Thank you. At this time, we have no further questions in queue. I'll turn the call back to management for any additional or closing remarks.

Speaker 2

Thank you all for listening and we'll be speaking to you with any major updates very soon.

Operator

Thank you. This does conclude today's Valley Corporation's 2nd quarter 2023 earnings conference call. You may disconnect your line at this time, and have a wonderful day.

Powered by Quartr
Earnings Conference Call
Bally's Q2 2023
00:00 / 00:00