You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Item 1A. " Risk Factors " and " Cautionary Note Regarding Forward-Looking Statements " in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. 39 --------------------------------------------------------------------------------
We are a global gaming, hospitality and entertainment company with a portfolio of casinos and resorts and online gaming businesses. We provide our customers with physical and interactive entertainment and gaming experiences, including traditional casino offerings, iCasino, online bingo games, sportsbook, DFS and F2P. As of
December 31, 2021, we own and manage 14 land-based casinos and one horse racetrack in ten states across the US operating under Bally's brand. Our land-based casino operations include approximately 14,900 slot machines, 500 table games and 3,900 hotel rooms, along with various restaurants, entertainment venues and other amenities. Certain of our properties are leased under a master lease agreement with GLPI, a publicly traded gaming-focused REIT. With our acquisition of London-based Gamesys on October 1, 2021, we expanded our geographical and product footprints to include an iGaming business with well-known brands providing iCasino and online bingo experiences to our global online customer base with concentrations in Europeand Asiaand a growing presence in North America. Our iCasino and online bingo platforms and games content, sportsbook and F2P games are provided on a B2B as well as a B2C basis. Our revenues are primarily generated by these gaming and entertainment offerings. We own and operate our proprietary software and technology stack designed to allow us to provide consumers differentiated offerings and exclusive content.
At the end of 2020, we changed our name to
In 2021, we took significant steps forward in our strategy. We acquired multiple casino and resort properties, including
Bally's Lake Tahoe, Bally's Evansvilleand Bally'sQuad Cities. We also agreed to purchase Tropicana Las Vegasin Las Vegas, Nevadaand announced plans to construct a land-based casino in Centre County, Pennsylvania, adding to our land-based casino presence. With the pending acquisition of Tropicana Las Vegasand the completion of construction in Centre County, Pennsylvania, we will own and manage 16 land-based casinos across 12 states.
In addition, we have also expanded our interactive business by:
Bally Sports Networkthrough our partnership with Sinclair, which combines our sports betting technology with Sinclair's expansive footprint. With Bally's brand, the media partnership and the unencumbered skins (gaming licenses) that we have acquired and reserved in our portfolio, we can now provide our customers omni-channel gaming and entertainment across our various physical properties while having a singular online and mobile presence with a brand that is synonymous with gaming, hospitality and entertainment;
• the acquisition of Gamesys, a leading international online gaming operator that offers gaming entertainment to a global customer base; i
Bally'sInteractive, formerly Bet.Works, and its proprietary technology stack and turnkey solutions, which include marketing, operations, customer service, risk management and compliance. We believe that the Bet.Works acquisition provides us with a suite of advanced omni-channel products, platforms, software and content solutions positioning us to deliver competitive sports betting and iCasino offerings to customers on a national scale. These steps have positioned us to become a leading, full-service, vertically integrated sports betting and iGaming company in the US with physical casinos and online gaming solutions united under a single, leading brand.
The COVID-19 pandemic has significantly impacted, and is likely to continue to impact, our business in a material manner. In mid-March of 2020, all of our properties at the time were temporarily closed as a result of the COVID-19 pandemic. Our properties began to reopen in mid-2020 in some capacity and remained open for the rest of 2020, with the exception of
Bally's Twin Riverand Bally'sTiverton which closed again for a period from November to December 2020. As of December 31, 2021, all of our properties are open and operating with minimal restrictions. The pandemic and its consequences dramatically reduced travel and demand for hotel rooms and other casino resort amenities, which had a negative impact on our results in 2020 and 2021. While many restrictions have been relaxed at this point, there are no assurances that a resurgence of future COVID-19 variants will not cause similar disruptions that existed in 2020 and 2021. In addition, future demand for gaming activities may be negatively impacted by the adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth or reduced business spending due to the impact of the COVID-19 pandemic. Our business could also be impacted if the disruptions from the COVID-19 pandemic impact construction projects, including our project in Centre County, Pennsylvania, described below. 40 -------------------------------------------------------------------------------- While we are working closely with government officials on operational aspects of our properties, we cannot predict the duration of any limitations the government or we may impose on our operations. Continuing restrictions on our operations, the economic uncertainty that COVID-19 continues to cause and the personal risk tolerances of our customers have caused, and may continue to cause, our business to be negatively impacted. Because the situation is ongoing, and because the duration and severity of the pandemic remain unclear, it is difficult to forecast any impacts on our future results. We currently expect the COVID-19 pandemic to continue to impact our operations negatively in 2022.
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees and other government programs to support companies affected by the COVID-19 pandemic and their employees, including those like us that operate in the gaming area. The benefits of the CARES Act that were available to us included:
• Reimbursement of federal income taxes due to the five-year recovery of the net operating loss incurred in 2020 when our 2020 tax return was filed in 2021;
• relaxation of the limitation of the deduction of interest expenses for the purposes of income tax; i
•the employee retention credit, providing a refundable federal tax credit equal to 50% of the first
$10,000of qualified wages and benefits, including qualified medical plan contributions, paid to employees while they are not performing services after March 12, 2020and before January 1, 2021.
Recent and pending acquisitions
Acquisition of Gamesys
October 1, 2021, we acquired Gamesys, a leading UK-based global online gaming operator. In connection with the acquisition, Gamesys shareholders received, in the aggregate, 9,773,537 shares of our common stock and $2.08 billionin cash. We believe that Gamesys' proven technology platform will foster our continued buildout of our interactive offerings in North America, including real-money gaming options in online sports betting and iGaming. Additionally, unifying Bally'sand Gamesys' player databases and technologies provides us with one of the largest portfolios of omni-channel cross-selling opportunities, consisting of land-based gaming, online sports betting, iCasino, online bingo, daily fantasy sports and free-to-play games. We believe that these offerings, coupled with our media partnership with Sinclair, position the Company to capitalize on significant growth opportunities in the rapidly expanding US online entertainment and sports betting markets.
Other acquisitions 2021
In addition to the Gamesys acquisition, we completed or signed definitive agreements for multiple transactions within our
Casinos & Resortsand North America Interactive reportable segments. The pending acquisition of Tropicana Las Vegasis expected to close during the second half of 2022. Refer to " Our Strategy and Business Developments " section above and Note 5 " Acquisitions " to our consolidated financial statements presented in Part II, Item 8 for further information.
Key performance indicators
The key performance indicators used in managing our business is adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), a non-GAAP measure. Adjusted EBITDA is defined as earnings for the Company, or where noted our reportable segments, before, in each case, interest expense, net of interest income, provision (benefit) for income taxes, depreciation and amortization, non-operating income, acquisition, integration and restructuring expense, share-based compensation and certain other gains or losses as well as, when presented for our reportable segments, an adjustment related to the allocation of corporate cost among segments. 41 -------------------------------------------------------------------------------- We use Adjusted EBITDA to analyze the performance of our business and it is used as a determining factor for performance based compensation for members of our management team. We have historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period performance. Also, we present Adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. Adjusted EBITDA information is presented because management believes that it is a commonly used measure of performance in the gaming industry and that it is considered by many to be a key indicator of our operating results. Management believes that while certain items excluded from Adjusted EBITDA may be recurring in nature and should not be disregarded in evaluating our earnings performance, it is useful to exclude such items when comparing current performance to prior periods because these items can vary significantly depending on specific underlying transactions or events that may not be comparable between the periods presented or they may not relate specifically to current operating trends or be indicative of future results. Adjusted EBITDA should not be construed as an alternative to GAAP net income, its most directly comparable GAAP measure, as an indicator of our performance. In addition, Adjusted EBITDA as used by us may not be defined in the same manner as other companies in our industry, and, as a result, may not be comparable to similarly titled non-GAAP financial measures of other companies.
Results of operations
The following table presents, for the periods indicated, certain revenue and income items: Years Ended December 31, (In millions) 2021 2020 2019 Total revenue
$ 1,322.4 $ 372.8 $ 523.6
Operating income (loss) 93.4 (18.4) 114.6 Net income (loss)
(71.8) (5.5) 55.1 42 --------------------------------------------------------------------------------
The following table shows, for the periods indicated, certain items of income and expenditure expressed as a percentage of total income:
2021 2020 2019 Total revenue 100.0 % 100.0 % 100.0 %
Games, hotels, food and beverages, retail, entertainment and other expenses
40.5 % 37.2 % 35.4 % Advertising, general and administrative 38.7 % 47.5 % 34.5 % Goodwill and asset impairment 0.4 % 2.3 % - % Gain on sale-leaseback (4.0) % - % - % Contract termination 2.3 % - % - % Other operating costs and expenses 4.3 % 7.8 % 2.1 % Depreciation and amortization 10.9 % 10.2 % 6.2 % Total operating costs and expenses 92.9 % 104.9 % 78.1 % Income (loss) from operations 7.1 % (4.9) % 21.9 % Other income (expense): Interest income 0.2 % 0.2 % 0.4 % Interest expense, net of amounts capitalized (9.1) % (17.0) % (7.6) % Change in value of naming rights liabilities 1.3 % (15.5) % - % Gain on bargain purchases 1.7 % 17.1 % - % Loss on extinguishment of debt (7.8) % - % (0.3) % Other, net 0.9 % - % - % Total other expense, net (12.8) % (15.1) % (7.5) % (Loss) income before provision for income taxes (5.8) % (20.1) % 14.4 % (Benefit) provision for income taxes (0.3) % (18.6) % 3.8 % Net (loss) income (5.4) % (1.5) % 10.5 %
Note: Table amounts may not be subtotal due to rounding.
During the fourth quarter of 2021, the Company updated its reportable segments to better align with its strategic growth initiatives in light of recent acquisitions. As a result of this realignment, the Company determined it had three reportable segments:
Casinos & Resorts, North America Interactive and International Interactive. Prior year amounts have been reclassified to conform to this new presentation. Refer to "Our Operating Structure" in Item 1 " Business " for a listing of entities by segment and Note 19 " Segment
Report “for more information.
The following table sets forth certain financial information associated with results of operations for the years ended
December 31, 2021, 2020 and 2019. Non-gaming revenue includes hotel, food and beverage and retail, entertainment and other revenue. Non-gaming expenses include hotel, food and beverage and retail, entertainment and other expenses. Years Ended December 31, 2021 over 2020 2020 over 2019 (In thousands, except percentages) 2021 2020 2019 $ Change % Change $ Change % Change Revenue: Gaming Casinos & Resorts $ 803,940 $ 298,070 $ 381,062 $ 505,870169.7 % $ (82,992)(21.8) % North America Interactive 10,442 - - 10,442 100.0 % - - % International Interactive 239,110 - - 239,110 100.0 % - - % Total Gaming revenue 1,053,492 298,070 381,062 755,422 253.4 % (82,992) (21.8) % Non-gaming Casinos & Resorts 228,888 74,722 142,515 154,166 206.3 % (67,793) (47.6) % North America Interactive 27,910 - - 27,910 100.0 % - - % International Interactive 12,153 - - 12,153 100.0 % - - % Total Non-gaming revenue 268,951 74,722 142,515 194,229 259.9 % (67,793) (47.6) % Total revenue $ 1,322,443 $ 372,792 $ 523,577 $ 949,651254.7 % $ (150,785)(28.8) % Operating costs and expenses: Gaming Casinos & Resorts $ 263,751 $ 95,901 $ 103,557 $ 167,850175.0 % $ (7,656)(7.4) % North America Interactive 10,721 - - 10,721 100.0 % - - % International Interactive 132,560 - - 132,560 100.0 % - - % Total Gaming expenses 407,032 95,901 103,557 311,131 324.4 % (7,656) (7.4) % Non-gaming Casinos & Resorts 110,090 42,768 81,615 67,322 157.4 % (38,847) (47.6) % North America Interactive 9,299 - - 9,299 100.0 % - - % International Interactive 8,658 - - 8,658 100.0 % - - % Total Non-gaming expenses 128,047 42,768 81,615 85,279 199.4 % (38,847) (47.6) % Advertising, general and administrative Casinos & Resorts 342,489 139,537 153,953 202,952 145.4 % (14,416) (9.4) % North America Interactive 43,245 - - 43,245 100.0 % - - % International Interactive 41,571 - - 41,571 100.0 % - - % Other 84,364 37,406 26,447 46,958 125.5 % 10,959 41.4 % Total Advertising, general and administrative $ 511,669 $ 176,943 $ 180,400 $ 334,726189.2 % $ (3,457)(1.9) % Margins: Gaming expenses as a percentage of Gaming revenue 39 % 32 % 27 % 7 % 5 % Non-gaming expenses as a percentage of Non-gaming revenue 48 % 57 % 57 % (9) % - % Advertising, general and administrative as a percentage of Total revenue 39 % 47 % 34 % (8) % 13 % 44
Our Total revenue for the years ended
December 31, 2021and 2020 consisted of the following (in thousands): 2021 2020 $ Change % Change Gaming $ 1,053,492 $ 298,070 $ 755,422253.4 % Hotel 95,356 24,742 70,614 285.4 % Food and beverage 92,906 32,132 60,774 189.1 % Retail, entertainment and other 80,689 17,848 62,841 352.1 % Total revenue 1,322,443 372,792 949,651 254.7 % Total revenue for the year ended December 31, 2021increased $949.7 million, or 254.7%, to $1.32 billion, from $372.8 millionin 2020. We saw gaming, hotel, food and beverage and retail, entertainment and other revenues grow and exceed, in some cases, pre-pandemic levels, as we were able to operate with less restrictions across our properties in 2021, in addition to fewer days closed year-over-year, resulting from developments in the COVID-19 pandemic and an increase in consumer confidence and visitation. In addition to the above, incremental revenues from acquisitions completed in 2021, including Gamesys, Bally's Evansville, Bally's Lake Tahoe, Bally'sQuad Cities and our North America Interactive acquisitions (collectively the "2021 Acquisitions"), and from our acquisitions completed in 2020, including Bally's Atlantic City, Bally's Shreveport, Bally's Kansas City, Bally's Vicksburgand Bally'sBlack Hawk (collectively, the "2020 Acquisitions"), contributed, in the aggregate, $704.9 million. Operating costs and expenses For 2021, we recorded total operating costs and expenses of $1.23 billion, up $837.9 million, or 214.2%, from $391.2 millionin 2020. The change in total operating costs and expenses was driven by fluctuations in our gaming and non-gaming expenses, advertising general and administrative costs, acquisition, integration and restructuring expenses and other operating costs and expenses, each described below. We expect our total operating costs and expenses to increase in 2022 as compared to 2021 as a result of the inclusion of our recent acquisitions, most notably, Gamesys.
Game and non-game expenses
Gaming expenses for the year ended
December 31, 2021increased $311.1 million, or 324.4%, to $407.0 millionfrom $95.9 millionin 2020. The increase in gaming expenses primarily attributable to the inclusion of expenses from our 2021 Acquisitions and incremental gaming expenses from our 2020 Acquisitions which contributed, in the aggregate, $269.4 million. Non-gaming expenses for the year ended December 31, 2021increased $85.3 million, or 199.4%, to $128.0 millionfrom $42.8 millionin 2020. This increase was primarily due to the inclusion of our 2021 Acquisitions and incremental expense from our 2020 Acquisitions which contributed, in the aggregate, $69.8 million.
Advertising, general and administrative
Advertising, general and administrative expenses for the year ended
December 31, 2021increased $334.7 million, or 189.2%, to $511.7 millionfrom $176.9 million, in 2020. The increase year-over-year is primarily due to the impact of our 2021 Acquisitions and 2020 Acquisitions which, in the aggregate, contributed $245.9 millionto advertising, general and administrative expenses for the year ended December 31, 2021. Additionally, in connection with the Gamesys acquisition, the Company recognized post-combination expense related to the acceleration and cash settlement of unvested historical Gamesys' employee stock awards of $10.3 millionincluded within Advertising, general and administrative expense.
Acquisition, integration and restructuring
$71.3 millionof acquisition, integration and restructuring expense during the year ended December 31, 2021compared to $13.3 millionin 2020 driven by $43.5 millionof costs incurred in connection with our acquisition of Gamesys on October 1, 2021, as well as our other 2021 Acquisitions. Refer to Note 11 " Acquisition, integration and restructuring expense " for further information. 45 --------------------------------------------------------------------------------
Other expenses and operating expenses
During the fourth quarter of 2021, we recorded contract termination expense of
$30.0 millionrelated to the early termination of retail and online sportsbook operating agreements with William Hillat certain of our casino properties. During the fourth quarter of 2020, Hurricane Zeta made landfall in Louisianashutting down our Hard Rock Biloxi property for three days. As a result, during the year ended December 31, 2021, we recorded gains from insurance recoveries, net of losses, of $19.3 millionattributable to insurance proceeds received in the year compared to a loss of $14.1 millionin 2020. In connection with our corporate name change to Bally'sCorporation in November 2020and the rebranding of our casino properties across our portfolio, we incurred rebranding expense of $2.5 millionand $0.8 millionduring the years ended December 31, 2021and 2020, respectively.
During the second quarter of 2021, we sold ours
During the year ended
December 31, 2021, we recorded asset impairment charges of $4.7 millionrelated to the former trade names at our Bally's Doverand Bally'sBlack Hawk in connection with our rebranding. During the year ended December 31, 2020, we recorded an impairment charge of $8.7 millionas a result of an impairment analysis performed on goodwill and intangible assets acquired in connection with our acquisition of Bally'sBlack Hawk.
Amortization and depreciation
Depreciation and amortization of intangibles expense for the year ended
December 31, 2021was $144.8 million, an increase of $106.9 million, or 282.6%, compared to $37.8 millionin 2020 driven by the inclusion of incremental expense from our 2021 Acquisitions and 2020 Acquisitions, which contributed, in the aggregate, $83.9 millionyear-over-year.
(Loss) operating income
Income from operations was
$93.4 millionfor the year ended December 31, 2021compared to loss from operations of $18.4 millionin 2020. This increase was driven by revenue growth resulting from a return in visitation to our properties as COVID-19 restrictions were lifted as well as more days open in 2021 compared to 2020 coupled with incremental revenues from our 2021 Acquisitions and 2020 Acquisitions, offset by operating expenses as noted above.
Other income (expenses)
Total other expense increased
$113.1 million, or 200.5%, to $169.6 millionfor the year ended December 31, 2021from $56.4 millionin 2020. This increase was driven by a loss on extinguishment of debt of $103.0 millionin connection with the termination of our obligations under our prior revolving credit facility and prior term loan facility and the redemption of our 6.75% senior notes due 2027 in connection with our credit facility entered into on October 1, 2021and a $56.9 millionincrease in interest expense year-over-year due to higher borrowings and interest rates. Refer to Note 12 " Long-Term Debt " for further information. Offsetting these increases was $17.0 millionof income recorded to adjust the naming rights liability associated with our contracts with Sinclair to fair value and a gain on bargain purchases of $22.8 millionin connection with the acquisitions of Bally's Evansvilleand Bally's Lake Tahoe.
Provision (benefit) for income taxes
Benefit for income taxes for the years ended
December 31, 2021and 2020 was $4.4 millionand $69.3 million, respectively. The effective tax rate for the year ended December 31, 2021was 5.7% compared to 92.7% in 2020. The decrease in the effective tax rate was due to an increase in state tax expense and an increase in nondeductible costs related to the acquisition of Gamesys during 2021, as well as a lower bargain purchase gain in 2021 as compared to 2020. Further, the 2020 provision included a significant rate benefit as a result of the CARES Act, and we had a lesser benefit in the 2021 provision. In addition, Gamesys entities are taxed at lower rates versus the US federal tax rate, which impacted 2021 beneficially due to the rate differential. This benefit was offset by amounts related to share-based compensation, loss on derivative instruments and other permanent amounts. 46 --------------------------------------------------------------------------------
Net loss and loss per share
Net loss for the year ended
December 31, 2021was $71.8 millioncompared to net loss of $5.5 millionin 2020. As a percentage of revenue, net loss increased from 1.5% for the year ended December 31, 2020to a net loss of 5.4% for the year ended December 31, 2021. Diluted loss per share for the year ended December 31, 2021and December 31, 2020was $1.45and $0.18, respectively, and was impacted by the factors noted above.
Segmentally adjusted EBITDA
Consolidated adjusted EBITDA was
Adjusted EBITDA for the
Casinos & Resortssegment for the year ended December 31, 2021increased $228.6 million, or 251.7%, to $319.5 millionfrom $90.8 millionin 2020. This increase was driven by strong results across our portfolio due to higher visitation to our properties, particularly at Bally's Twin Riverproperty, Hard Rock Biloxi and Bally's Doverproperties, a full year of 2021 results from properties which were acquired in 2020, including Bally's Shreveportand Bally's Kansas City, and the inclusion of Bally's Evansville, which was acquired during the second quarter of 2021.
Adjusted EBITDA for the North America Interactive segment was
for the finished year
Adjusted EBITDA for our International Interactive segment was
$69.9 millionfor the year ended December 31, 2021, directly attributable to our acquisition of Gamesys on October 1, 2021.
International thousands) Resorts Interactive Interactive Other Total Net income (loss)
$ 186,287 $ (36,879)
Interest expenses, net of interest
37 (15) (27) 117,929 117,924 Provision (benefit) for income taxes 72,128 (8,281) (4,261) (63,963) (4,377) Depreciation and amortization 54,120 18,096 46,341 26,229 144,786 Non-operating (income) expense(1) - 355 640 50,639 51,634 Acquisition, integration and restructuring - 182 1,444 69,662 71,288 Share-based compensation - - - 20,143 20,143 Gain on sale-leaseback (53,425) - - - (53,425) Contract termination - - - 30,000 30,000 Other, net(2) (9,887) 12,500 1,470 23,394 27,477 Allocation of corporate costs 70,217 1,629 - (71,846) - Adjusted EBITDA
$ 319,477 $ (12,413)$ 69,944 $ (43,357) $ 333,651
(1) Non-operating income (expense) includes: (i) change in value of naming rights liabilities and (ii) gain on bargain purchases, (iii) loss on extinguishment of debt, and (iv) other, net. (2) Other includes the following non-recurring items: (i) Post-combination expense related to the acceleration and cash settlement of unvested historical Gamesys' employee stock awards, (ii)
Goodwilland asset impairments, (ii) deal-related, rebranding, expansion and pre-opening expenses, (iii) Employee Retention Credits related to COVID-19, (iv) Credit Agreement amendment related expenses, (v) costs related to pursuing sports betting, iGaming and lottery access in various jurisdictions, (vi) non-routine legal expenses, and (vii) net gains related to insurance recoveries. 47 -------------------------------------------------------------------------------- Casinos & Year Ended December 31, 2020 (in thousands) Resorts Other Total Net income (loss) $ 28,555 $ (34,042) $ (5,487)Interest expense, net of interest income 34 62,602 62,636 Benefit for income taxes (16,018) (53,306) (69,324) Depreciation and amortization 37,786 56 37,842 Non-operating (income)(1) - (6,211) (6,211) Acquisition, integration and restructuring 20 13,237 13,257 Share-based compensation - 17,706 17,706 Other, net(2) 19,942 41 19,983 Allocation of corporate costs 20,515 (20,515) - Adjusted EBITDA $ 90,834 $ (20,432) $ 70,402
(1) Non-operating income (expense) includes: (i) change in value of naming rights liabilities and (ii) gain on bargain purchase. (2) Other includes the following non-recurring items: (i)
Goodwilland asset impairments, (ii) deal-related, rebranding, expansion and pre-opening expenses, (iii) Employee Retention Credits related to COVID-19, (iv) Credit Agreement amendment related expenses, (v) costs related to pursuing sports betting, iGaming and lottery access in various jurisdictions, (vi) non-routine legal expenses and (vii) storm related losses. Casinos & Year Ended December 31, 2019 (in thousands) Resorts Other Total Net income (loss) $ 95,575 $ (40,445) $ 55,130Interest expense, net of interest income 3,380 34,546 37,926 Provision (benefit) for income taxes 34,664 (14,614) 20,050 Depreciation and amortization 32,367 25 32,392 Non-operating (income) expense(1) (39) (144) (183) Acquisition, integration and restructuring 1,617 10,551 12,168 Share-based compensation - 3,826 3,826 Other, net(2) (439) 6,280 5,841 Allocation of corporate costs 17,032 (17,032) - Adjusted EBITDA $ 184,157 $ (17,007) $ 167,150
(1) Non-operating income (expense) includes: (i) loss on extinguishment of debt, and (ii) other, net. (2) Other includes the following non-recurring items: (i) deal-related, rebranding, expansion and pre-opening expenses, (ii) Credit Agreement amendment related expenses, (iii) costs related to pursuing sports betting, iGaming and lottery access in various jurisdictions, (iv) non-routine legal expenses, (v) net gains from insurance recoveries, and (vi) pension payment for out-of-period unpaid contributions.
The information required by this section can be found in our Part II. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2020 . 48
Liquidity and capital resources
We are a holding company. Our ability to fund our obligations depends on existing cash on hand, cash flow from our subsidiaries and our ability to raise capital. Our primary sources of liquidity and capital resources have been cash on hand, cash flow from operations, borrowings under our Revolving Credit Facility (as defined herein) and proceeds from the issuance of debt and equity securities. We assess liquidity in terms of the ability to generate cash or obtain financing in order to fund operating, investing and debt service requirements. Our primary ongoing cash requirements include the funding of operations, capital expenditures, acquisitions and other investments in line with our business strategy and debt repayment obligations and interest payments. Our strategy has been to maintain moderate leverage and substantial capital resources in order to take advantage of opportunities, to invest in our businesses and acquire properties at what we believe to be attractive valuations. As such, throughout 2021, we continued to invest in our land-based casino business and began to build on our interactive/iGaming gaming business despite the COVID-19 pandemic. We believe that existing cash balances, operating cash flows and availability under our Revolving Credit Facility, as explained below, will be sufficient to meet funding needs for operating, capital expenditure and debt service purposes. Additionally, while we may seek other funding alternatives, we believe existing sources will provide the cash necessary to fund our proposed acquisition of
Tropicana Las Vegas. Cash Flows Summary Years Ended December 31, (In thousands) 2021 2020 2019 Net cash provided by operating activities $ 82,754 $ 19,502 $ 94,100Net cash used in investing activities (2,296,904) (444,846) (38,925) Net cash provided by financing activities 2,404,598 366,397 48,896
Effect of foreign currency on cash and cash equivalents (42,163)
Net change in cash and cash equivalents and restricted cash
148,285 (58,947) 104,071 Cash and cash equivalents and restricted cash, beginning of period 126,555 185,502 81,431 Cash and cash equivalents and restricted cash, end of period
$ 274,840 $ 126,555 $ 185,502A discussion of changes in cash flows comparing the years ended December 31, 2020and 2019 has been omitted from this Form 10-K and can be found in Part II. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" of our Annual Report on Form 10-K for the year ended December 31, 2020.
Net cash provided by operating activities for the year ended
December 31, 2021was $82.8 million, an increase of $63.3 millionfrom $19.5 millionin 2020. This increase was primarily attributable to increased net loss resulting from higher interest expense due to increased borrowings, amortization expense related to Gamesys' intangible assets and loss on extinguishment of debt, as noted above.
Net cash used in investing activities for the year ended
December 31, 2021was $2.30 billion, an increase of $1.85 billioncompared to $444.8 millionused in investing activities for 2020. The increase was primarily driven by an additional $1.85 billionof cash paid for acquisitions year-over-year, $2.27 billionin 2021 compared to $425.1 millionin 2020, most notably cash paid for Gamesys of $1.90 billion, coupled with a $82.2 millionincrease in capital expenditures in connection with our expansion and renovation projects at Bally's Atlantic City, Hard Rock Biloxi, Bally's Kansas Cityand Bally's Twin River. These increases were offset by $144.0 millionof proceeds related to the sale-leaseback transaction for Bally's Doverwith GLPI. 49 --------------------------------------------------------------------------------
Net cash provided by financing activities for the year ended
December 31, 2021was $2.40 billioncompared to $366.4 millionfor 2020, an increase of $2.04 billionyear-over-year. Cash provided by financing activities in 2021 was driven by our debt borrowings, offset by repayments, as follows: Years Ended December 31, 2021 2020 Revolver proceeds $ 375,000 $ 285,000Term loan proceeds 1,925,550 261,180 Senior note proceeds 1,487,003 122,500 Issuance of long-term debt $ 3,787,553 $ 668,680Revolver repayments $ (325,000) $ (250,000)Term loan repayments (569,125) (4,375) Senior note repayments (525,000) - Repayment of Gamesys' debt (458,450) - Repayments of long-term debt $ (1,877,575) $ (254,375)
In addition, we received revenue from the capital issues of our public offering and the issuance of Sinclair penny warrants, partially offset by increased share repurchase expense in our return program. of capital, which is explained below.
Capital return program
June 14, 2019, we announced that our Board approved a capital return program allowing for a total of up to $250.0 millionfor a share repurchase program and payment of dividends. This was subsequently increased by $100.0 millionon February 10, 2020and another $350.0 millionon October 4, 2021. On July 26, 2019, we completed a modified Dutch auction tender offer, purchasing 2,504,971 common shares at an aggregate purchase price of $73.9 million. In addition, during 2019 we repurchased 6,558,379 common shares at an aggregate purchase price of $148.8 million. During the year ended December 31, 2021, we repurchased 2,188,532 common shares for an aggregate price of $87.0 million. During the year ended December 31, 2020, we repurchased 1,812,393 common shares for an aggregate price of $33.3 million. During the years ended December 31, 2020and 2019, the Company paid cash dividends of $0.10and $0.20per common share for a total cost of approximately $3.2 millionand $7.6 million, respectively. In connection with the COVID-19 pandemic, we ceased paying dividends. We do not currently intend to pay any dividends on our common stock in the foreseeable future. Any future determinations relating to our dividend policies will be made at the discretion of our Board and will depend on conditions then existing, including our financial condition, results of operations, contractual restrictions, capital and regulatory requirements and other factors our Board may deem relevant.
Common stock offers and warrants
April 20, 2021, we completed a public offering of 12,650,000 common shares at a price to the public of $55.00per share and issued to affiliates of Sinclair warrants to purchase 909,090 common shares at the same offering price. The net proceeds from the public offering and the private warrant sale, after deducting underwriting discounts, were $671.4 millionand $50.0 million, respectively, and were used to finance a portion of the purchase price of Gamesys and to retire certain of our existing indebtedness. 50 --------------------------------------------------------------------------------
Debt and lease obligations
May 10, 2019, the Company entered into a credit agreement with Citizens Bank, N.A., as administrative agent, and the lenders party thereto, consisting of a $300 millionterm loan B facility and a $250 millionrevolving credit facility. On May 11, 2020, the Company amended the credit agreement to increase the term loan facility by $275 millionto $525 million. On March 9, 2021, the Company amended the credit agreement to increase the borrowing limit under the revolving credit facility to $325 million. The Company's obligations under the revolving credit facility and the term loan facility were terminated and amounts outstanding were repaid in connection with the Company's entry into the Credit Facility on October 1, 2021as described below. 6.75% Senior Notes due 2027 On May 10, 2019, the Company issued $400 millionaggregate principal amount of 6.75% unsecured senior notes due June 1, 2027and, on October 9, 2020, the Company issued an additional $125 millionaggregate principal amount of 6.75% unsecured senior notes due June 1, 2027(together, the "2027 Notes"). On September 7, 2021, the Company redeemed $210 millionaggregate principal amount of the 2027 Notes at a redemption price of 106.750% of the principal amount using a portion of the proceeds of the Company's April 2021public offering of common stock. On October 5, 2021, the Company redeemed the remaining $315 millionaggregate principal amount of the 2027 Notes at a redemption price of 109.074% of the principal amount using a portion of the proceeds of its Term Loan Facility (as defined herein). As of December 31, 2021, no amounts pertaining to these 2027 Notes remained outstanding. In connection with the termination of the prior credit agreement and the 2027 Notes, the Company recorded a loss on extinguishment of debt of $103.0 millionin the year ended December 31, 2021.
August 20, 2021, we issued $750.0 millionaggregate principal amount of 5.625% senior notes due 2029 and $750.0 millionaggregate principal amount of 5.875% Senior Notes due 2031 (together, the "Senior Notes"). On October 1, 2021, upon the closing of the Gamesys acquisition, we assumed the issuer obligation under the Senior Notes. The indenture contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, (1) incur additional indebtedness, (2) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, (3) enter into certain transactions with affiliates, (4) sell or otherwise dispose of assets, (5) create or incur liens and (6) merge, consolidate or sell all or substantially all of the Company's assets. These covenants are subject to exceptions and qualifications set forth in the indenture.
October 1, 2021, we entered into the Credit Agreement providing for a senior secured term loan facility in an aggregate principal amount of $1.945 billion(the "Term Loan Facility"), which will mature in 2028, and a senior secured revolving credit facility in an aggregate principal amount of $620.0 million(the "Revolving Credit Facility"), which will mature in 2026. The credit facilities allow us to increase the size of the Term Loan Facility or request one or more incremental term loan facilities or increase commitments under the Revolving Credit Facility or add one or more incremental revolving facilities in an aggregate amount not to exceed the greater of $650 millionand 100% of the Company's consolidated EBITDA for the most recent four-quarter period plus or minus certain amounts as specified in the Credit Agreement, including an unlimited amount subject to compliance with a consolidated total secured net leverage ratio. The credit facilities contain covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, sell assets, make certain investments, and grant liens. These covenants are subject to exceptions and qualifications set forth in the Credit Agreement. The Revolving Credit Facility contains a financial covenant regarding a maximum first lien net leverage ratio that applies when borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment. 51 --------------------------------------------------------------------------------
See Note 12 “Long-Term Debt” in Section 8 of this Annual Report on Form 10-K.
GLPI Master Lease
In connection with the acquisition of
Bally's Evansville, an affiliate of GLPI has agreed to acquire the real estate associated with the Evansville Casinofrom the Seller for $340.0 millionand lease it to us under a master lease agreement (the "Master Lease"). GLPI has also agreed to acquire the real estate associated with Dover Downs Gaming & Entertainment, Inc.("Dover Downs") for $144.0 millionand lease it back to the us under the Master Lease. The Master Lease with GLPI has an initial term of 15 years and includes four, five-year options to renew and requires combined minimum annual payments of $40.0 million, subject to escalation. The acquisition of Evansvilleand commencement of the Master Lease was June 4, 2021. During the second quarter of 2021, the Company sold the real estate associated with Dover Downs to GLPI and recorded a gain of $53.4 millionrepresenting the difference in the transaction price and the de-recognition of assets. This gain is reflected as "Gain on sale-leaseback" in the consolidated statements of operations.
We also look forward to funding our proposed agreement to acquire the
In addition to the operating lease components under the GLPI Master Lease, the Company is committed under various long-term operating lease agreements primarily related to submerged tidelands, property and equipment at Hard Rock
Biloxi, Bally's Kansas City, Bally's Shreveportand Bally's Lake Tahoe. Additionally, certain of the Company's subsidiaries lease office space, data centers, parking space, memorabilia and equipment under agreements classified as operating leases that expire on various dates through 2030. Minimum rent payable under operating leases was $834.8 millionas of December 31, 2021. Refer to Note 13 " Leases " in Item 8 of this Annual Report on Form 10-K for further information.
Capital expenditures are accounted for as either project, maintenance or capitalized software expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair, along with spending on other small projects that do not fit into the project category. Capitalized software expenditures relate to the creation, production and preparation of software for use in our online gaming operations. For the year ended
December 31, 2021, capital expenditures were $97.5 millioncompared to $15.3 millionin 2020. In 2020, as a result of the COVID-19 pandemic and the Company's efforts to proactively manage expenses and retain sufficient liquidity, all major projects were suspended. In 2021 as our properties reopened and operations resumed, we commenced spending on maintenance and planned projects at our casino properties though our progress lagged due to nationwide supply chain shortages. We expect that capital expenditures in 2022 will exceed 2021 amounts as we plan to make significant progress towards project goals, particularly at Bally's Twin River, Bally's Atlantic Cityand Bally's Kansas City, and increase spending relating to the maintenance and improvements at our other casino properties. In addition, during 2022 we plan to commence construction on the Centre County, Pennsylvaniadevelopment project. We expect to fund these expenditures from a combination of cash flow from operations and cash on hand. Because the pandemic is ongoing and the duration and severity remains unclear, it is difficult to forecast any impacts on our future results and therefore, planned spending on these projects may be impacted as we continue in 2022. Below is a summary of our planned projects:
Bally's Atlantic City- Construction on our Bally's Atlantic Cityproperty commenced in 2021. We are committed to invest approximately $100 millionover a span of five years to refurbish and upgrade Bally's Atlantic City'sfacilities and expand its amenities, including renovated hotel rooms and suites, outdoor beer hall and lobby bar. Spending in 2022 is estimated at approximately $40 million. Bally's Kansas City- We began construction on the planned redevelopment project of Bally's Kansas Cityin November 2021. We believe the redevelopment of the property, which includes a 40,000 square foot land-based building, restaurant, bar and retail space, will improve the property and guest experience and drive growth and our return on investment. Spend on the project is estimated to be approximately $50 million, largely in 2022, with a target completion date in the first half of 2023. Centre County, PA- On December 31, 2020, we signed a framework agreement with entities affiliated with an established developer to design, develop, construct and manage a Category 4 licensed casino in Centre County, Pennsylvania. Construction of the casino is expected to begin in the first half of 2022 and will take approximately one year to complete. Subject to receipt of regulatory approvals, it will house up to 750 slot machines and 30 table games. The casino will also provide, subject to receipt of separate licenses and certificates, retail sports betting, online sports betting and online gaming. We estimate the total cost of the project, including construction, licensing and sports betting/iGaming operations, to be approximately $120 million. If completed, we will acquire a majority equity interest in the partnership, including 100% of the economic interests of all retail sports betting, online sports betting and iGaming activities associated with the project.
Other contractual obligations
Bally's Trade Name- We acquired Bally's brand from Caesars Entertainment, Inc. on October 13, 2020for $20.0 millionpayable in cash in two equal installments of $10.0 millionon the first and second anniversary of the purchase date. The Company made the first installment payment during 2021 and will pay the second installment in 2022. Deferred Consideration - In September of 2019, prior to our acquisition of Gamesys, Gamesys (Holdings) Limited("GHL") was acquired by JPJ Group plc("JPJ") and subsequently renamed Gamesys. In connection with the JPJ acquisition, £11.2 million of the cash consideration was deferred and payable (plus interest) to GHL's majority shareholders 30 months after closing. The Company has recorded $15.1 millionrepresenting the deferred consideration which is payable on March 26, 2022, and recorded within current liabilities of the consolidated balance sheet as of December 31, 2021.
Critical accounting estimates
The preparation of our consolidated financial statements in accordance with US GAAP requires us to make estimates and apply judgments that affect reported amounts. These estimates and judgements are based on past events and/or expectations of future outcomes. Actual results may differ from our estimates. We discuss our significant accounting policies used in preparing the financial statements in Note 2 of our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The following is a summary of our critical accounting estimates and how they are applied in preparation of our consolidated financial statements.
Valuation of intangible assets acquired in business combinations
Intangible assets consist primarily of gaming licenses, trade names, developed technology and customer lists which have all been obtained through business combinations or asset acquisitions, as well as a Naming Rights intangible asset obtained through our agreement with Sinclair and internally developed software attributable to our interactive businesses. Gaming licenses obtained through business combinations are generally recorded at their fair values through purchase accounting using the Greenfield Method under the income approach. This method estimates isolated income that properly attributable to a license based on modeling a hypothetical start-up company going into business without any other assets than the gaming license being valued and building a new casino with similar utility to the existing casino. Using this method, the valuation of the gaming license is dependent upon significant estimates such as projected revenues and cash flows, estimated construction costs, duration of that construction, pre-opening expenses and appropriate discounting. Gaming licenses accounted for as asset acquisitions are valued at cost. Trade names obtained through business combinations are valued using the relief-from-royalty method under the income approach. This method estimates the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset. As such, the value of a trade name acquired through a business combination is dependent upon estimates such as projected revenues, selection of an appropriate hypothetical royalty rate and appropriate discounting. Trade names accounted for as asset acquisitions are valued at cost. 53 -------------------------------------------------------------------------------- Developed technology is obtained through business combinations and is recorded at fair value through purchase accounting using the Multi-Period Excess Earnings Method under the income approach. The principle behind this method is that the value of an intangible asset is equal to the present value of the incremental after tax cash flows attributable only to the subject intangible asset after deducting Contributory Asset Charges ("CACs"). The principle behind a CAC is that an intangible asset 'rents' or 'leases' from a hypothetical third party all the assets it requires to produce the cash flows resulting from its development, that each project rents only those assets it needs and not the ones that it does not need, and that each project pays the owner of the assets a fair return on the value of the rented assets. Under this method, the valuation of developed technology is dependent on estimates such as projected revenues and cash flows, CAC and appropriate discounting. The Naming Rights intangible asset obtained through our agreement with Sinclair was accounted for as an asset acquisition and recorded at its cost at the acquisition date. The cost consisted of 1) discounted cash payments due over a 10 year term, 2) the fair value of warrants and options issued to Sinclair, and 3) an estimate of tax receivable agreement payments due to Sinclair. The cash payments were subject to estimation through the selection of an appropriate discount rate. The warrants and options were estimated at their fair values using an option pricing model, which was dependent upon assumptions and key inputs such as our common stock price volatility, risk free rates, our common stock price, expected terms and our estimated probabilities of achievement of performance vesting conditions inherent in certain warrants. Certain gaming licenses and trade names are considered to be indefinite lived based on future expectations of operating our gaming properties indefinitely, continuing to brand our corporate name and certain properties under the
Bally'strade name indefinitely and continuing to indefinitely brand our online casino offerings within the International Interactive segment with the trade names acquired through the Gamesys acquisition. Intangible assets not subject to amortization are reviewed for impairment annually as of October 1and between annual test dates whenever events or changes in circumstances may indicate that the carrying amount of the related asset may not be recoverable. For its finite-lived intangible assets, we establish a useful life upon initial recognition based on the period over which the asset is expected to contribute to the future cash flows of the Company and periodically evaluates the remaining useful lives to determine whether events and circumstances warrant a revision to the remaining amortization period. Finite-lived intangible assets are amortized over their remaining useful lives in a pattern in which the economic benefits of the intangible asset are consumed, which is generally on a straight-line basis.
Assessment and subsequent measurement of
Goodwillrepresents the excess future economic benefits of a business combination and is measured as the excess of consideration transferred over the fair value of the assets acquired and liabilities assumed in a business combination. Accounting for goodwill involves significant management judgment both in the initial measurement through purchase price allocations of business combinations and valuations of assets acquired within those business combinations and in the ongoing assessment of impairment. We are required to test goodwill for impairment at least annually and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have elected to perform our annual tests for indications of goodwill impairment as of the first day of the fourth quarter of each year. We test for goodwill impairment at the reporting unit level, which is at or one level below the operating segment level. When assessing goodwill for impairment, first, qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. A qualitative impairment assessment involves analyzing relevant events and circumstances, with greater weight assigned to events and circumstances that most affect the fair value or the carrying amounts of a reporting unit's assets. Items that are generally considered include, but are not limited to, the following: macroeconomic conditions, industry and market conditions and overall financial performance. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. The quantitative goodwill test compares the estimated fair value of each reporting unit with its carrying value (including goodwill and identifiable intangible assets). The fair value of a reporting unit is estimated using an income approach, whereby a discounted cash flow model is utilized and may also consider a market approach using guideline public company data. There are significant management judgments involved in estimating fair value through the use of a discounted cash flow model, which include, but not limited to, (i) projected financial information for the reporting unit and (ii) selecting an appropriate discount rate. If the reporting unit's estimated fair value exceeds its estimated net book value, goodwill is not impaired. An impairment is recognized if the estimated fair value of a reporting unit is less than its estimated net book value, in an amount not to exceed the carrying value of the reporting unit's goodwill. 54 --------------------------------------------------------------------------------
We prepare our income tax provision in accordance with the Codification of Accounting Standards (“ASC”) 740, Income Taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences in the carrying amounts of the consolidated financial statements of existing assets and liabilities and their respective tax bases and liabilities. operating losses and future tax credits.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate change is enacted. A valuation allowance is required when it is "more likely than not" that all or a portion of the deferred taxes will not be realized. The consolidated financial statements reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities' full knowledge of the position and all relevant facts. The allocation of shared costs and intangible assets among our subsidiaries in various
U.S.domestic, state and international jurisdictions is an estimate based on the principles of IRC Section 482, 1060 and 338 which is a critical estimate in the computation of U.S.and international tax provisions. The interpretation of the IRC regulations related to the Tax Cuts and Jobs Acts, as it pertains to Section 163(j), is a critical estimate in the computation of U.S.federal taxes, and conforming states.
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