Good day, and thank you for standing by. Welcome to the Bally's Corporation First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. In order to ask a question during the session, please press star followed by the 1 key. That is star 1 on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star zero. I would now like to turn the call over to Bobby Lavan, Chief Financial Officer of Bally's. Please go ahead, sir.
Good morning, everyone, and thank you for joining us on today's call. The earnings release that accompanies this call is 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 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 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 the call. Turning it over to Lee.
Thank you, Bobby. Hello, everyone. Good to be with you today. It has not been that long actually since we last reported. In that short time there has been some change and we have achieved one very important milestone. The momentum we saw in casinos and resorts in late February continued through April. Atlantic City was positive in March and April, which is an exciting turn for that property. The removal of mask mandates and the return of smoking in Rhode Island drove the highest performance there since early 2019. On the interactive side, on a constant currency basis, the business was up 1% year-on-year, which was driven by a balance of some weakness in The U.K. and continued strength in Asia. In The U.K., the consumer wallet has shrunk due to inflationary pressure, and we need to reset our operating structure to accommodate the change.
We've already started to remove some lower performance marketing spend, and we will execute on efficiencies from our larger global portfolio. Structurally, we have the tailwind of a long-term pathway on growth in Asia, as well as the high growth opportunity set to invest in North America. During the quarter, North America Interactive was in ramp-up mode. Bally Casino in New Jersey continues to build and Virgin Casino transferred to the Bally's license during this quarter. We launched live dealer in New Jersey and additional proprietary games are being deployed, including Bally's Blackjack. Bally's has now overtaken Virgin in terms of actives and revenue. Additionally, we will wind down providing B2B services to Tropicana this quarter, and that will free up resources and accelerate our B2C business.
The New Jersey business is tracking well, and we view that lower cost of acquisition with circa $200 CPA and streamlined infrastructure to be our model as we roll out additional states over the coming months and years. We launched in Arizona yesterday with our foundational 2.0 product, and New York will follow later this quarter. This is a significant milestone for us and represents a huge effort by the team, and I'm proud of all the work that's been done to bring our technology stacks together. Arizona is a key market for us with our groundbreaking WNBA partnership, marketing spend with the Diamondbacks, and our media partnership with Sinclair. In New York, we will be cautious as we keep a keen eye on marketing spend and how to navigate a high-tax environment in sports betting. We're on track to launch in Ontario in the summer.
In the second half, we will focus on states where there are iCasino opportunities or where we expect there to be iCasino opportunities in the near term. In April, we signed our partnership with the Cleveland Browns for market access in Ohio, taking our market access footprint to 18 states. Jumping into some of the segment details, casinos and resorts reported at $85 million EBITDA at 30.4% EBITDA margin. This includes $5.6 million of Atlantic City losses, of which more than $3 million were in January. Excluding AC, EBITDA was $91 million compared to $89 million in 1Q 2019. 1Q 2019 is pre-Encore Boston Harbor opening, so our comps get easier as the year progresses. There was approximately $5 million of weather impact in an unusual January.
AC delivering positive EBITDA in March is proof that the new rooms and heightened amenities can bring that property back toward historical performance levels. More than 700 rooms will be completed for Memorial Day at approximately $60,000 per key. A new lobby bar and outdoor beer hall will revitalize the property. We've started an Bally's AC launch campaign that will bring awareness to the property and our iCasino, which will help drive customer acquisition efficiencies to the omni-channel experience. A lift of mask mandates and smoking bans drove Lincoln monthly profitability in March to the highest level since early 2019. There, we are currently operating significantly above our long-term forecasts, and we're cautiously optimistic for the full- year potential of our marquee property. Most of our properties continued their momentum in April, but we're watching the lower-income consumer very carefully, and we're aligning resources accordingly.
Moving to International Interactive. On a constant currency basis, the overall business was down 1%, which includes the wind down in non-core geographies. Our UK business was down 9%, offset by our Asia business, which was ahead 16%. Rest-of-the-world business was flat, which on an overall basis is slightly below our expectations. Top line performance in The U.K. continues to be challenging as we lap tough comps. We delivered a 30% growth in Q1 of 2021. The Q1 slowdown was R2 rather than actives driven, as we saw some tightening in consumer spending. A combination of UK consumer weakness, market friction in front of new regulation, and a significantly weaker FX lowers our top line expectations for our business in The U.K.. We will align and redirect resources accordingly to maintain our earnings levels from the business.
As a note, FX impacts top line, but actually has a de minimis impact on earnings. Asia continued its double-digit growth path. Our new Yuugado brand continues to take share. Slots consolidated their position as our largest product segment, even when you combine live and RNG casino, and we believe this demonstrates wider adoption of the online gaming in the market. We're a first mover out there, and safe to say that the data is pointing us to tremendous opportunities in both short and long-t erm. We will be launching sports betting in June. That offers us another opportunity to accelerate the business. We continue to expect Asia to deliver double-digit growth that throughout the year will help offset any slowdown in The U.K.. On an EBITDA basis, Spain and rest of world performed in line. We will continue to profitably wind down the non-core markets.
Moving on to North America Interactive. We've made good progress in the business leading up to a full launch calendar. New Jersey had $600,000 of revenues in January, jumping to $1.5 million in March, which is a great ramp. SportCaller, Telescope, and our various B2B businesses continue to provide low-cost acquisition opportunities while we wind down Bet.Works business with the store that will come to an end in July. Our new bespoke front end, combined with the Gamesys PAM and data analytics, is a big step forward for the business. Throughout the year, we will launch sports integrations with our Sinclair partnership and multiple iterations to our sports book product. In the quarter, EBITDA loss for North America Interactive was $19 million as we accelerated development costs to make our state-by-state rollout more scalable.
Now, I will turn you back to Bobby for some more details on financial performance.
Thanks, Lee. The quarter started weak with unusual weather in casinos and resorts and negative momentum in International Interactive that carried over from fourth quarter. To give some context, casino and resorts EBITDA was $19 million in January versus $39 million in March. In The U.K., on a constant currency basis, UK revenues were -11% year- over- year in January versus -5% in March. Needless to say, we have some performance to make up for in 2022, but April has been strong. Additionally, we are increasing our cost savings from the Gamesys transaction from $5 million disclosed last quarter to $10 million on an annualized basis. We believe this will continue to grow, particularly once North America Interactive launches ramp. I wanted to take this time to address our foreign exchange currency position.
Our February 2022 forecast was set at 1.35 GBP to USD. With the volatility in the market and various central bank dynamics, GBP to USD has moved 7% since our guide. While GBP to USD moves impact our UK business top line reporting in dollars, it has very low impact on our EBITDA. Our top line on the International Interactive business is approximately 30% USD, 60% GBP, and 10% other currencies. Our costs are 20% USD, 65% GBP, and 25% euro. The FX move tempers our top line guidance but also moves our interactive EBITDA margins up. We will continue to monitor the situation. Our North America business had -$19 million in EBITDA, driven by developer time on ramping launches for the rest of the year.
We expect these investments to subside as we progress through the year. Software development costs for Interactive were $15 million, which is the right place for the rest of the year.
Corporate was -$13 million, slightly higher than expected due to front-loading of our charitable donation programs. Rent of $11 million was in line. As we announced on April 1st, 2022, we closed the first part of the Tropicana acquisition related to the sale leaseback of Quad Cities and Black Hawk. We view these transactions as part of the larger Tropicana project and will report the rent for those properties as part of transaction costs until we announce the larger project. More to come on Tropicana in the coming months. For the full- year, we expect revenue to be at the low end of our previously announced guidance of $2.4 billion-$2.5 billion, due primarily to FX and some slowdown in The U.K.
Our EBITDA guidance remains the same in the range of $560 million-$580 million, with efficiencies offsetting the slowdown in The U.K.. Our capital expenditure guidance remains the same, with $180 million of property-related CapEx, $60 million of interactive CapEx, and $30 million of one-time corporate integration CapEx. Maintenance CapEx remains in the $100 million range. Thank you, and turning it back to the operator for Q&A.
Thank you. At this time, if you would like to ask a question, please press the star one on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. Again, that is star one to ask a question. We'll pause for a moment to allow questions to queue. Thank you. Our first question will come from Jeffrey Stantial with Stifel.
Hey, good morning, guys. Thanks for taking the questions. My first question.
Good morning.
My first question here is gonna be on the international interactive business. You called out the tightening in The U.K.. There's some FX headwinds. Just curious, how does this play into your prior guidance for this segment, which called for mid-single digit top-line growth at about 20%-29% margins? Just how should we think about those targets in light of some of these headwinds you're calling out?
Yeah, thanks, Jeff. I think it's common across the industry, right? We've seen some slowdown in the U.K. U.K. spending has been tightening, inflationary pressures out there, where I'd say we're now projecting low single digit growth in U.K., but we're aligning our cost base to maintain the profitability and the earnings flow from U.K. I think you'll see margins nudge up from the 29%, maintain our earnings, but we're expecting some weakening on the top line.
Okay, perfect. That's helpful and encouraging. Maybe if we just hang on that for a second, you know, the inflationary pressures, I guess, what are you seeing? Like, what in your data gives you know, gives you comfort to lead to this conclusion versus, you know, maybe the softening being something more of a function of COVID tailwinds just taking, you know, more than a year to really come out of the business. What leads you to think it's the inflationary pressures that's really driving the softening? Is it something between the low and the high end of your database? Just kind of what data are you seeing that kind of brings you to that conclusion?
Well, really, our retained actives are steady, right? We continue to see activity, which is always the first thing that we look for. Are people engaged? They are still engaged. We've just seen a weakening since January in ARPU. You've got ARPUs, which are, you know, off circa 7%-9%, depending on the month. We've still got the activity, which is, you know, a good thing. It's why we think that it is mostly about, you know, the contraction of the consumer wallet in The U.K., particularly with the significant rise in energy costs.
Understood. That's helpful. Then if I might just squeeze in one more, you know, on the North America interactive rollout, I think $19 million in losses was a bit more than most folks were expecting, especially with the bulk of the rollout coming in the back half of the year. You know, you previously guided to $60 million in losses for the full- year. Is that still intact or should we think about something more in the $80 million-$100 million range? That's all for me. Thanks.
Yeah. Thanks, Jeff. We are holding to that now. We had a heavy lift in Q1, right? We built the foundational 2.0 app, and we're now reallocating some of the resources that helped us do that back to international interactive, now that we're out the door. You know, you combine that with a growing iCasino business and more efficiencies on the B2B side of the business, that makes us optimistic to hold to the guidance. You know, there's always the chance that we could decide to put our foot to the floor on the rollout plan. We haven't made that call now, so we're sticking with where we were.
Understood. Very helpful. I'll pass it on. Thanks, Lee.
Thank you.
Thank you. Our next question will come from Barry Jonas with Truist Securities.
Oh, great. Thanks for taking my question, and congrats, Bobby, on the new role. Maybe just as a first question, can you give any color on the strategic review and the conclusion?
Morning, Barry. Obviously, we are, you know, we're limited in what we can say here, but I'll pass this one over to our new CFO, Bobby Lavan, who's gonna give you a bit more color.
Thanks, Barry. You know, the committee hired world-class financial and legal experts who did a lot of analysis, had discussions with representatives of Standard General, and worked hard to get to what was the best interest of the shareholders. You know, the committee worked hard with its advisors.
Assessing, among other things in terms of Standard General's proposal and the fact that it was financed in significant part from sale leaseback transactions, you know, valuing prospects, including the synergies we expect to realize and other opportunities we hope to be available and recent historical trading prices and other factors. At the conclusion of the review, Standard General and Bally's could not reach an agreement, so the committee decided to terminate discussions. While it is not an alternative, we are pursuing a tender offer to return significant amounts of capital to shareholders.
Great. In regards to the proposed tender offer as well as other developments you're pursuing, whether that's Vegas or other cities, how are you thinking about financing? Maybe walk us through how you see net leverage progressing for the company.
Yeah, I mean, Barry, as you know, tender rules are very strict. You know, the commencement of the offer is subject to obtain committed financing, and we are evaluating all the options with our advisors, so stay tuned. As it goes to net leverage for the business, you know, right now on a sort of gross debt to EBITDA basis, you know, we're at somewhere between 5.25 and 5.5. You know, we would expect that to be a comfortable position in the short- term as we build out our North American interactive business and we invest in our sort of growth opportunities. We're not gonna, you know, bring that down anytime soon, but there is a way to reduce leverage, and that is growing the denominator.
What's the max number, even in the short run, you'd be willing to entertain?
Yeah. We, you know, right now we have gross debt to EBITDA in current covenants with Rhode Island, so that's a focus for us.
Got it. If I could sneak one more in. Lee, any updates on The U.K. regulatory review? I know we're getting close to potentially getting a white paper, but if you know, just curious if any updated thoughts that you can share there.
Yeah. So obviously delay in terms of getting the white paper out. We actually had the minister in to visit us a couple of weeks ago, which was good, and had the opportunity to delve in with him. Key focus for us on the Gambling Act Review. Of course, it covers many different bases because it covers both retail and online. But our focus is around affordability and any of the affordability measures because we think that's where any impact has come. You know, I think there's growing noises in The U.K. that, you know, we don't want to be requesting documentation from players at relatively modest levels of spend. I think that message is getting through.
Certainly, we felt that the minister took that on board when we met with him a couple of weeks ago. You know, there's a real pushback from fellow conservative MPs not wanting to go down the nanny state route of requesting documents at low levels of spend. That's the key thing we're looking to make sure doesn't happen. I was pleased to see that I think it was yesterday or the day before, the Gambling Commission reported yet another fall in the problem gambling rates, right? That will show that we've been going in a positive direction for a long time now, and we're hopeful that the changes that are implemented won't be too impactful to what we do.
As I've said many times, you know, Barry, that any change in regulation, I think is likely to benefit the scaled players and that we will take share over time off the bat.
Yep. All right. Thank you so much, guys. Appreciate it.
Thank you.
Thank you. Our next question will come from Ricardo Chinchilla with Deutsche Bank. Ricardo, your line is open. Please make sure your phone is on, not on mute.
Hey, guys. Thanks for taking the question. I was wondering if you could provide some color on what potential funding mechanisms would you guys have if you were awarded the Chicago project and, or if you guys were decided to do a significant renovation at Tropicana, which any color also on that development would be very appreciated.
Hi, Ricardo. Morning. We've said for a long time that, you know, we can, we've got a very substantial land bank that we will tap for significant strategic opportunities for the business. I think that we can do that for Chicago, where we can win that bid. You know, I think the same would be true for Tropicana, although we've long said that we would do that with an investment partner. More to come on that, as I think Bobby mentioned, but, you know, we'll be talking much more about both those projects over the coming months.
Great. You know, just from a timing perspective, when you think about all the balls in the air that you guys have at the moment, to some extent, we continue to get investor questions on, you know, how you're going to manage to do them all at the same time. If you could provide like a timeline on, you know, when would you be potentially starting a project in Tropicana? Any further development on Rivers? You know, on Chicago, when would that start then? You know, how long it could potentially take given your current plan. Any timing on those potential developments and other in all of your other CapEx projects, just for us to have a clear picture of the spend levels would be very helpful.
Sure. Just one comment from me, and then I'll pass it over to George to give a bit more color. From our perspective, obviously, we need to win a bid in Chicago to be able to proceed, but George might be able to give a bit more color on what the timing would be should we do that, depending on the timing of the announcement. In terms of Tropicana LV, we've said that we'll close that in Q3, right? Anything that we're going to do there, we will give more color on over the next couple of months. But we'll be back to you as soon as we have the details. George, do you wanna give a bit more comment?
Sure. I have a follow-up. In Chicago, the RFP requires the opening of a temporary facility in approximately one year, but that's after the licensing. You know, maybe that's a year and a half to a year and nine months off. Then, three years subsequent to the temporary opening, there will be the opening of the permanent facility.
Got it. One last one from me. Given that you guys reaffirmed your guidance, can you just point out if there is any potential impact that you guys are forecasting from The U.K. regulatory review? You know, if you could, you know, give us based on what your discussions have been with regulators, any range of a potential impact, even preliminary, on what that review could be for your business?
Well, we've already, for the last two years, we would say, been operating in line with a lot of the policies and practices which are being promoted by The U.K. Gambling Commission for the review. Obviously, we have to wait and see what the white paper says in terms of where any particular thresholds or levels are set. You know, we've been adapting our business and adapting our operation to take account of most of what's been coming forward as proposals in The U.K.. We're not putting out any impact today in terms of how that review might go because we think that most of what will be proposed in The U.K., we're already operating inside of.
Got it. Thank you so much for taking my questions.
Thank you. Thanks, Ricardo.
Thank you. Our next question will come from Daniel Politzer with Wells Fargo.
Hey, guys. Good morning, and congrats, Bobby, on the new position. I wanted to touch on the regionals. Could you talk a little bit about the trends that you're seeing across the database? I know you mentioned you're monitoring the low-end consumer, but you know, to what extent can you maybe opine on the low end, middle end, and maybe even the high end, if there's any discernible differences across your database? But also, you know, which properties should we be paying particular, you know, attention to as we think about that low-end consumer? Thanks.
Yeah. Okay. Hi, Dan. Yeah, you know, we're watching. Really, the only kind of headwind that potentially could occur is inflation, as we're living through this. You know, we're closely watching the impact of inflation. It certainly is on the lower household income segment of our database, but that's currently being offset still by some pent-up demand, especially in our older age demographic, you know, as there is more comfort that COVID is behind us. We continue to see growth in our higher worth customer segment. You know, we're dealing with that through the right sizing of the cost structure.
When we came out of COVID, you know, obviously, we came out with a very lean fixed cost structure, and we feel, from the variable side of our business, which is just as business increases or decreases, we have at least a kind of a querying approach that mitigates, you know, any of these shortfalls in revenue, but certainly allows us to quickly react to certain revenue opportunities.
Got it. Then, just in terms of all the kind of potential projects out there, you know, you have Chicago, you know, New York, Japan are also thrown out too as, you know, areas where you're interested. How should we think about, you know, the typical cash-on-cash returns, you know, for these casinos or potential projects? I think for Chicago, the proposed cost is around $1.75 billion. Wanted to, you know, get a sense of the return expectations there, and is that all in including land, licensing fees, et cetera? Thanks.
Sure. Bobby, why don't you hit that one up?
I mean, we always underwrite a sort of at least a 15% return unless there is a significant active, interactive dynamic, but 15% is what we're underwriting on those projects.
Got it. Then just on one last one on in Tropicana Las Vegas. You know, as you think about this project and the possible iterations it could come out in, you know, how do you think about the impact of rising costs, inflation, materials costs, economic uncertainty on your plans there?
George, you wanna pick that one up?
Sure. You know, obviously, we're monitoring the kind of the economic conditions right now. Anything we do there, you know, would be really focused on a longer term development opportunity. As we mentioned a little earlier, you know, we would probably bring a development partner into that. You know, that's still to be seen.
Understood. Thanks so much.
Thank you.
Thank you. Our next question will come from David Katz with Jefferies.
Hi. Good morning. Thanks for taking my questions. One for you, Lee. I'd love your opinion or your perspective on, you know, entering US markets. Yeah. Other than day one, right? We've seen, you know, players enter on day one take a certain approach in terms of how aggressive they are with spending, capturing market share, you know, versus entering markets, you know, say, weeks, months, you know, down the road where it has tended to be a bit less aggressive. I'd love your perspective on sort of those strategies in markets where we are entering.
Morning, David. Listen, we've reiterated many times in terms of how we look to approach the market, and it isn't with a similar, let's say, hyper-aggressive marketing spend that you've seen from some others. We've mentioned also earlier that, you know, we're gonna lean into a number of launches that really leverage the opportunity set that we believe we've created, right? States where there's iGaming opportunities or we think there's gonna be pretty near-term iGaming opportunities are ones where we will have a particular focus. You know, I think, you know, states like Illinois and Indiana, et cetera, where we also have physical casinos and we have a media presence.
Even though we haven't had our 2.0 sportsbook out there until yesterday, doesn't mean we haven't been active, right? We've been doing a lot in building our top of funnel, both awareness, whether it's through Bally Sports or through free-to-play opportunities that have been building our dataset. That's where we continue to focus. We will look very hard at return on investment from our marketing and stay disciplined.
Understood. Just a second, with respect to the land-based business, you mentioned earlier a considerable land bank, and I wanna make sure I interpreted your comment properly. I took it to mean that there is real estate value within the land-based properties as it exists today that you could use to fund, you know, either Chicago or, you know, other improvements or other capital expenditures within the land-based portfolio. Is that how you're thinking about it?
Yeah, you understood it correctly.
Okay. Perfect. Thank you.
Thanks, David.
Thank you again. To ask a question, please press star one to join the queue. Our next question comes from Stephen Grambling with Goldman Sachs.
Hi. Thanks. Maybe another follow-up just on the tender. I guess to determine the magnitude, the $300-$500. I guess why was that the appropriate range?
Okay. Yeah. I mean, that was where the board felt that a good amount was, but we can't comment more than that.
Is the tender offer, you know, kind of the ultimate end result of that review? Or would you say that there's also other opportunities that you can think about, that are still being evaluated?
This is the ultimate end of the review. You know, the board is always evaluating ways to drive long-term shareholder value.
Great. Thanks. That's it for me.
Thank you. Our next question comes from Jeffrey Stantial with Stifel.
Hey. Thanks, guys. I just wanted to circle back. You know, I just wanna clarify and be crystal clear on the guide. It sounds like the biggest impact is FX, which is compositional and impacting revenue. You know, is it fair if revenues are at the low end, but that's all compositional that the prior EBITDA guide is still squarely in line with how you were thinking about things back in Q4?
Yeah. That's correct, Jeff.
Perfect. Just wanted to clarify on that. That's all for me. Thanks, guys.
Thank you.
Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect. Have a great day.