Bally’s posts Q1 declines while avoiding analysts
Bally’s Corp has recently announced its first-quarter results, underscoring the company’s anticipation of substantial growth following the inclusion of Queen casinos in its portfolio. This report marks the third consecutive quarter in which Bally’s executives refrained from engaging with analysts during earnings calls, a trend that has raised eyebrows within the investment community.
### Lack of Engagement with Analysts
Notably, Bally’s did not hold a conference call to discuss its first-quarter earnings, a pattern that has persisted since the last two quarters. The silence from company officials comes on the heels of a significant merger with Queen Casino and Entertainment, a transition that the company recently completed. Although Bally’s provided minimal context during prior earnings calls, stakeholders are expecting more detailed disclosures during the upcoming annual shareholder meeting scheduled for Thursday.
### Financial Performance Overview
For Q1, Bally’s reported revenues of $589.2 million, representing a 5% decline for the second consecutive quarter. Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent (EBITDAR) remained flat at $147.7 million. Notably, the company’s stock performance has suffered significantly, closing at $11.21—a staggering 42% drop year-to-date.
### Split Reporting: Predecessor and Successor Periods
Navigating Bally’s financials is challenging due to its decision to segment results into two periods—“predecessor” and “successor.” The predecessor period, from January 1 to February 7, occurred before the merger, while the successor period spanned from February 8 to March 31. During the quarter, casino and resort revenues grew by 2.6% year-over-year, reaching $351.2 million, bolstered by the integration of Queen casinos. CEO Robeson Reeves stated this addition enhances scale and positions the company for promising long-term growth.
Despite these gains, properties in Rhode Island, Chicago, and Atlantic City have posed ongoing challenges. Improvements in Rhode Island, attributed to targeted marketing efforts, and operational adjustments in Chicago, alongside recent leadership changes in Atlantic City, promise to bolster performance in these key markets.
### Interactive Gaming Performance Mixed
Bally’s interactive segment has yielded mixed outcomes in recent quarters. International interactive revenues dropped 18.3% to $191.7 million, despite a 5% uptick in UK revenue. Adjusted EBITDAR for this segment declined to $77.1 million, primarily due to the divestiture of the Asian interactive business in Q4 2024. Nonetheless, excluding this factor, revenue grew 7.7%.
Conversely, North American interactive revenues climbed by 12.5% to $44.5 million, highlighting a robust growth pattern. Primarily driven by its iGaming offerings across four states and mobile sports betting in eleven states, Bally’s stronghold in Rhode Island is considered a significant asset. Despite challenges in retail, digital growth has been a saving grace, though the segment still reported an adjusted EBITDAR loss of $16.5 million for Q1.
### Current Financial Health and Debt Management
As of March 31, Bally’s reported cash reserves amounting to $209.7 million alongside long-term net debt of $3.43 billion, marking an increase of over $130 million from December 31. This uptick does not account for new investments in Star Entertainment, which could further strain the company’s financial standing.
Capital expenditures rose dramatically from $28 million to $46.8 million year-over-year, primarily driven by higher lease payments from casinos leased under a financing agreement with Gaming and Leisure Properties. Concerns about financial stability have been reflected in Fitch’s recent downgrade of Bally’s issuer default rating to B- with a negative outlook, citing high leverage and execution risks related to development projects, particularly in the North American interactive segment.
### Challenges in Chicago Development
Bally’s ambitious $1.7 billion permanent casino project in Chicago faces significant hurdles following a construction halt on May 2, triggered by an unapproved contractor’s presence on-site. This setback is critical for Bally’s positioning in the region and is compounded by complications surrounding an initial public offering aimed at local residents, which has encountered prior rejection from the SEC.
With continued support from Gaming and Leisure Properties, Bally’s remains cautiously optimistic about resuming progress on this pivotal development.
### Strategic Investment in Star Entertainment
Bally’s recent investment in Star has also been a source of scrutiny. Originally pegged at AU$300 million, the investment has been reduced to AU$200 million, influenced by contributions from Star’s largest shareholder. Consequently, Bally’s ownership stake has decreased from 56% to 38%.
Thus far, Bally’s has invested AU$67 million of its commitment to this venture, with a shareholder vote scheduled for June. Reeves expressed confidence that strategic involvement with Star aligns with Bally’s operational ethos and has the potential to generate value for shareholders.
In summary, while Bally’s faces critical challenges—including fluctuating revenues, operational uncertainties, and substantial debt—its strategic moves with Queen casinos and Star Entertainment may pave the way for future growth. Stakeholders will be watching closely as the company navigates these issues in the coming quarters.
