Good day, and thank you for standing by. Welcome to the Bally’s Corporation third quarter 2022 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 period. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to turn the call over to Bobby Lavan, Chief Financial Officer for Bally’s. Please go ahead, sir.

Good morning, everyone and thank you for joining us on today's call. The earnings release and presentation that are accompanying this call are available in the Investor Relations section of our website. With me on today's call are Lee Fenton, Chief Executive Officer; George Papanier, President, Retail; and Robeson Reeves, President, Interactive. 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. Reconciliations to the most comparable financial measures are included in the schedules in our earnings release. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges within certain expenses. Today's call is also being broadcast live on our Investor site, and will be available for replay shortly after the completion of this call. Now handing it over to Lee.

Thank you, Bobby, and hello, everyone. We are one year on from bringing Gamesys into the Bally family, and the industrial logic remains as strong as ever. We now have a powerful global business with diversity of revenues and EBITDA. The Casinos and Resorts segment is going from strength to strength, as the portfolio of properties goes into the next phase of integration. The Interactive business have a tough COVID-driven comps to overcome, and has been impacted with negative FX swings through ’22. But Q3 has seen Interactive move to greater stability and profitability. As promised, we continue to deliver strong free cash flow from what is now a globally and channel-diversified business. The optimal integration of our combined assets remains unfulfilled for now as we still have work in progress, but we have made significant strides towards fulfilling that vision. The awareness of the Bally brand continues to grow, and employees from table dealers to tech developers, identify as Bally team members. Integration beyond the brand on the casinos and resort side has begun, and we're starting to see the fruits of that labor. Bally’s Chicago is a gamechanger for the group, and the early performance at Tropicana Las Vegas has been encouraging, and we're delighted to finally have a presence on the strip. New Jersey iGaming climbed to a 3.5% market share in the quarter, with CPA significantly below our peers, as we broaden the options available to our bricks and mortar database. New Jersey is shaping our blueprint thinking for future States. For the third quarter, we had tremendous results in Casinos and Resorts. Lincoln outperformed, finishing just shy of double-digit revenue growth, coupled with a continued focus on margin and initial growth of the IGT JV. That JV goes from 23% to 40% on January 1,…

Thanks, Lee. Casinos and Resorts reported $119 million of EBITDA. This includes positive $9.5 million of EBITDA for Atlantic City. Excluding Atlantic City, EBITDA margin was 39.5%, in line with our targets of high 30s. Adjusted EBITDA for the quarter excludes $3 million of rent to GLPI, associated with the purchase of Tropicana Las Vegas, which we closed on September 26. With the closing of Tropicana, we'll begin reporting $5.6 million per quarter of rent as part of the operating rent going forward. International Interactive had approximately $76 million of EBITDA at a 33.5% margin. The UK was plus 0.1% year-over-year, and Asia was minus 3% on a constant currency basis. As we discussed, marketing was reduced in UK by 30%, as we focus on profitability and highly efficient spend. North America Interactive had 20 million of negative EBITDA. In the quarter, there was approximately $7 million of EBITDA drag from non-core assets, which we are taking a hard look at. As noted in the press release, we will fully expense launch costs for States to our before being operational. This is a $4 million drag to 1Q plus 2Q, and a $6 million drag to 3Q plus 4Q versus budget and previous forecast. The cash outflows were budgeted to the balance sheets, and we are just adjusting the timing of taking these expenses. We have updated our 2022 financial forecasts to reflect the adverse FX headwinds, reset Atlantic City, and actual results for the first nine months of the year. At current FX rates, we expect revenues to be $2.25 billion, and adjusted EBITDA to be $540 million, which includes $75 million of North America Interactive EBITDA losses. We continue to focus on profitability and cutting costs, but some of those cost cuts will only occur with two months left in the year. We continue to expect capital expenditures to be $250 million for the year. Pro forma for the tender common shares outstanding at the end of the quarter were $47 million, and we have incremental warrants, options, and other dilution of $13 million shares. So, $60 million shares outstanding is the right way to look at our shares outstanding. We ended the quarter with $3.3 billion of net debt. We have ample liquidity to fund all of our announced projects, and continue to invest with care in North America Interactive. Our long-term commitment is to be sub 5x debt to EBITDA, which we expect to hit in mid-24, and we expect the Biloxi Tiverton transaction with GLPI to close in January of ’23. With that, Operator, let's open up to Q&A.

[Operator Instructions] We'll take our first question from Barry Jonas from Truist Securities.

Great. Thanks for that. Can we maybe start by talking about how October has been trending?

Sure. Hi, Barry. October is doing well. So, Casinos and Resorts is a continuation of the trend that we've seen in Q3. UK actually finished October up around 10% and Asia is just slightly down.

Great. And then just for a follow-up you talk a little bit about evaluating money losing businesses in North America Interactive. Can you maybe give a little bit more color about that?

Sure. Well, listen, as you know, we pulled together a fairly large number of assets in a pretty short spaced time, and we've now had 12 months of looking at that and knitting that picture together. The assets that are not showing us a near-term path to profitability will be of course under the microscope, as they should be. So, we're evaluating how that all knits together and we'll make the decisions quickly in terms of what doesn't work now that we have our stack pulled together.

Okay. So, more identifying sort of like more non-core, but the overall strategy remains?

Yes, overall strategy remains non-core. We're identifying effectively what becomes non-core.

Perfect. All right. Thank you so much.

The next question comes from Lance Vitanza from Cowen.

Hey, good morning, this is Jonnathan in for Lance. My first question is regarding the white paper. So, I understand Paul Scully is replacing Damian Collins. What were your first impressions with the replacement? And can we expect the white paper to be one of the top priorities, given everything that's going on in the UK?

Sorry, what was the first question? Can you repeat the first question again?

Sure. Just what was the first impression with the new person in charge of the white paper?

Okay. So, yes, we have a new minister now. I think it's our fifth minister in 12 months responsible. But the - we have a new minister, Paul Scully, who's the minister for the gambling white paper, also the Minister for Tech. First impressions are relatively positive. They have a big at DCMS, but I think the first impression is a positive, pro-business guy, and nothing to concern us. Expectations in terms of where it sits in the packing order, it is difficult to call. The DCMS has two big things on its ticket at the moment. One is the online harms bill and one is the gambling review. You may have seen that the new Prime Minister has said that he's there to deliver the manifesto promises that were given before by the Boris Johnson elected government, and that included the gambling reviews. So, we expect them to push on, but we don't necessarily expect it to be the top of the priority list.

Understood. and just on my last one. So, I understand like the Lincoln facility, right, like should that transaction ultimately like materialize, what kind of projects will - are out there that Bally’s will find interesting to use the process of this leaseback with?

Bobby?

Yes. I mean, we have - right now, the focus is Chicago, but long-term, we think that acquisitions in the casino space will continue, and we think that there's opportunities outside the US from a profitable perspective on the Interactive side. So, we have a multi-year path for cash needs. We feel very comfortable today with Chicago. But as we continue expanding, we'll look to a potential sale leaseback on Lincoln, but that’s a few years down the roads.

Okay, understood. Thank you.

Our next question comes from Jeff Stantial from Stifel.

Great. Morning, guys. Thanks for taking our questions. Starting on the brick-and-mortar segment, really nice performance on the margin side. Looks like up, call it 300 bps quarter-on-quarter. Bobby, I was just hoping you could sort of break down the sequential drivers there a bit more. How much is seasonality versus some of the centralization efforts you talked about in the prepared remarks, versus maybe just operating leverage quarter-on-quarter? Just any way to frame it there would be helpful.

Yes. I mean, the biggest step-up is Atlantic City has really turned around. So, that's exciting for us. We implemented some cost restructuring in August that's flowing through, but also the property just really outperformed. The other margin step-up is, as the IGT JV continues to roll in, that’s ultimately a significant margin driver for us because the EBITDA comes in without revenues. Ultimately, this is the first quarter where we have a full year. You remember we closed Evansville, Quad, and Montbleu in the second quarter of ’21. And we've rebranded the properties. We've started centralizing a bunch of the different back-office functions, and we're really focused on just the portfolio as a whole. George, can you add to that?

Yes Bobby, you've stated it pretty accurately. In addition to that, we've been able to maintain the labor reductions, primarily through FTEs. I think we’re arranging around a 25% reduction since 2019, and that’s pretty sticky. So, we've been able to maintain that other than the site offsets from increases in wages.

Okay, great. That’s very helpful. Thank you both. And then moving to the International Interactive side of the business, Lee, could you just provide some color on what you see as the biggest drivers of the softness in Asia? I know we've talked about some impact as consumers play in USD, but live in yen. Is that the main driver or is anything else driving that 3% contraction in constant currency?

Yes, I think it's largely macro factors which are driving that Asian region. We've operated in Asia for many years, and you see different slowdowns from time to time, whether it's macro, whether it's sometimes sentiment from gaming gets the occasional dip, but then that makes your marking more challenging. But somewhat the nature of the beast in pretty regulated markets, and more confident that the region will be in growth.

Okay, perfect. Very awful. Thank you both. I'll pass it on.

Our next question comes from David Katz from Jefferies.

Hi. This is Cassandra asking on behalf of David. I just want to go back to - thank you for taking my question, and I'd like to go back to the margin question. 39.5, excluding Atlantic City, is pretty good, but as we look forward, are there more levers to pull, or is there any more room for margin improvement at this point?

There is. The biggest one is the IGT JV, which is $15 million plus of EBITDA, will have no revenues next year. So, it's a 60/40 JV with IGT. So, we’re going to see a good step-up. On the cost side, we are very focused on centralization, and we've started trying to bring our teams together, whether it's procurement, finance, HR, and so we can really support the casinos more aggressively. I would also say, Atlantic City is zero EBITDA on $150 plus million of revenues. So, as that continues to have more profitability, we're very excited about what it does to our margins.

Great. Thank you. And if I may ask another one. You said you will refocus your efforts in North America Interactive, especially on the sports side. But you have this partnership or asset in kind of Sinclair. So, how do you think about that partnership going forward? How has that worked out so far for you?

So, we continue to get a huge amount of benefit from the naming branding that we have with Sinclair. And we continue to work on a watch-and-bet feature that can work across those RSNs. So, continues to form part of our plan, and we think we get tremendous best-of-branding benefit from it. The reality is, I said earlier, we haven't gone as quick as we would've liked on our own sports product, and we need to have that in a position that we're excited about to really take full advantage. So, the partnership with Sinclair continues.

Great. Thank you very much.

Our next question comes from Jordan Bender from JMP Securities.

Great. Thanks for taking my question. So, Trop now closed. You have a slide in your deck talking about evaluating potential development opportunities. We’ve got comments in the last couple of days that the commissioner of baseball seems to think the A’s will end up in Vegas. Is this - is putting a stadium on this plot of land still in the cards for you guys? Or is - are you guys thinking more of just a rebrand or renovation of that asset?

No, I think that that’s still very much on the cards for us. I mean, obviously, they've got you make some decisions and some choices. But we've been in discussions and discussions with other partners as well. I mean, our focus right now is laser focused on the property side, on the development of the temp in Chicago, but we're very much looking at the long-term plan for the Tropicana property, and that includes whether or not we could put a diamond in the middle.

Great. And then you obviously have some pretty close ties with the State of Rhode Island. Is there any conversations between you guys and the State on potentially legalizing iGaming?

So, yes, but we would be very keen to see iGaming in Rhode Island, as we would in any other State. But of course, Rhode Island is very close and where we're headquartered. So, we'd love to see iGaming rolled out there, and we think there is positive sentiment towards that happening.

Great. Thank you.

The next question comes from Dan Politzer from Wells Fargo.

Hey, good morning, everyone, and thanks for taking my questions. So, Bobby on North America Interactive, you guys are forecasting now a $75 million loss in 2022. But it sounds like at the same time you guys are kind of pivoting more, at least publicly, to focus more on iGaming and sports. How should we think about kind of the progression 2023, 2024 of that $75 million loss? Should it get better? Does it turn positive? And if so, give us some guideposts.

Yes. I mean, it will be better than it is this year. As we called out, there's about $7 million in the third quarter of losses that we view as non-core slash we need a plan to make them at least flat to positive. The iCasino in New Jersey continues to ramp. Very excited about early results in Ontario, a lot of iCasino in Pennsylvania next year, and we'll be minimizing the losses related to sports betting. And in the end, that's what North America Interactive should be. And so, the trajectory is positive, and we're feeling very confident about that. We just need to really look inside at that $7 million of losses and have a pass because just burning money for money’s sake, that was where the market was a few years ago, is not where we're going in the future.

Okay, got it. And then, have you guys given a long-term leverage target as we think about these projects getting layered in and the Chicago financing?

Will be sub five in ‘24.

Got it. Thanks so much.

Our next question comes from Ricardo Chinchilla from Deutsche Bank.

Hey, guys, thank you so much for taking the question. I was wondering if you could provide the regulatory EBITDA for leverage calculation purposes, and the leverage compared to the one that you report to Rhode Island.

So, the leverage we report to Rhode Island was about 650.

And that's the leverage, the EBITDA?

Sorry, the - I'm sorry, the EBITDA is 650. The leverage is 5.3.

Okay, perfect. Thank you.

Remember, that’s on a gross debt basis.

Got it. In terms of when you think about your project next year and the current state of the capital market, is there a way in which you guys could rethink about the $1.1 billion loan with any other funding sources that you guys think that maybe you would be required to put in more equity into the project? If you could comment on how much more equity would you guys be willing to put in just to kind of lower the rate or make the transaction a little bit more feasible, given the current set of capital markets, that would be very helpful.

Yes. Let me clear up some confusion that's in the market. That $1.1 billion comes in between ‘23 and ‘26. I have $1 billion of liquidity when we close the Biloxi Tiverton transaction, which should be very beginning of January. So, if the capital markets don't clear up, right, then I can put more capital in, and at some point, I'll be able to get a construction loan. I don't need that construction loan really until closer to the completion of the deal. Obviously, I want that because we want to maintain as much liquidity at the parent for flexibility for M&A and other strategic options. But we're pretty good. We’re close and focused on a land sale leaseback in Chicago, because we think that's a core part of the capital structure, which we talked about before. But really, we are not dependent on the capital markets as it relates to Chicago until ’24, ‘25.

Perfect. Thank you so much. One last one for me. You guys show in your forecast that you're still expecting to repurchase shares for 100 million in ‘23 and ‘24. How flexible are you guys with share purchases? And if you start seeing a slowdown in trends, would you guys cut this, or what other levels can you pull to just improve liquidity given the construction projects that you guys have?

Yes. Again, we have $1 billion of liquidity after those share repurchases. We are continuing to deliver returns to shareholders through share buybacks. But we'll evaluate with the macro environment. As we said, October was strong. So, I understand we're not seeing it. We are - as I've expressed to the investing community, we are preparing for it in ‘23 from a cost-cut perspective. And I think you saw the fruits of that labor in the third quarter on the casino side. And ultimately - but if the macro changes hard, the priority is funding Chicago.

Perfect. Thank you so much for your answers.

[Operator instructions] Our next question comes from Chad Beynon from Macquarie.

Hi. Good morning. Thanks for taking my question. Firstly, can you just talk about any updated intentions for a downstate casino in New York, kind of how this fits in your plan and current capital structure? Thanks.

No. Well Chad, I'd say early days. We remain interested in many opportunities, and New York's one of them. And we've said we'll continue to look to see if we can get into the mix there. But nothing to report right now.

Okay. Thanks, Lee. And then back on the International Interactive, squarely focusing on the UK, clearly, we've been watching that market, and there's been reports of just higher inflation and maybe a weakening consumer. When you guys talked about clearly tells a slightly different story, but can you just kind of give us any trends in terms of if you saw any differences throughout the quarter, if it got better, if it was stable. I mean, it sounds like this is something you're pretty comfortable with given your history in the market and visibility, but just wanted a little bit more color there.

Yes. So, Chad, I think that we're well steeped in the UK market and have a very long-term customer base here. And so, I guess the term I would use is ultra-optimization in terms of everything that we're doing in the UK. But I don’t know. Robeson is here. Maybe, Robeson, you can give a little more color in terms of what you've seen.

Yes. So, as Bobby said, we've cut marketing - acquisition marketing by 30%. We're still seeing the same value of revenue coming through from a reduced cohort play. We've made significant other optimizations, which have essentially driven more winning experiences for all of our players across the player base, which has driven up active days, driven up ARPUs in a sustainable way, and driven up retention, which gives me a lot of comfort that we have growth in Q4. That will be positive, and I expect to see continuing great margins there.

So, we have had a little uptick in ARPU in the quarter, but nothing crazy, right? And actually, ARPUs in Q3 ‘22 only very slightly ahead of ARPUs in Q3 ‘21.

That's great. Thank you both.

It appears you have no further questions. I will now turn the call back over to the speakers for any closing remarks.

Thanks, everyone.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.