Bally's Corp Q2 FY2022 Earnings Call

Good day and thank you for standing by. Welcome to the Bally's Corporation Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer period. Please be advised that today's conference is being recorded. I'd now like to turn the call over to Bobby Lavan, Chief Financial Officer for Bally's. Please go ahead, sir.

Good morning, everyone, and thank you for joining us on today's call. The earnings release and presentation that are accompanying this call are available in the Investor Relations section of our website. With me on today's call are Lee Fenton, Chief Executive Officer; George Papanier, President-Retail; Robeson Reeves, President-Interactive; Amit Patel, Senior Vice President and Regional General Manager; and Joyen Vakil, Senior Vice President of Design and Development. 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 this call. Now handing it over to Lee.

Thank you, Bobby, and hello, everyone. We now have three quarters under our belts since the combination of Bally's and Gamesys. We've made considerable progress over the past 10 months. We've rolled out the Bally's brand across our property portfolio and the Sinclair RSNs. We brought Bally's iCasino to life in New Jersey. We have developed our foundational OSB product and begun its deployment. We've won the bid to develop the first downtown casino in Chicago. And we brought together the company as one Bally's with a single purpose and a set of DNA that we will embed further as we progress. While we're now a more unified company, we recognize we're going into some global turbulence, and I believe the significant cash flow generation of our Casinos & Resorts and International Interactive segments continued to be one of our critical success factors. Since we reported the second quarter, we've had a number of puts and takes on our business. In Casinos & Resorts, Lincoln continued to outperform expectations, post removal of the mask mandate and the return of smoking. However, the turnaround of Atlantic City will take longer than we hoped for with AC having negative $3 million of EBITDA versus our expectations of a positive $4 million. AC is not where we want it to be. Now most of the renovation program is complete. We've moved to restructure our cost base there to go forward. From August, we've taken out costs which should generate $10 million of annualized savings at the property. We are heartened by improvements in handle and drop. And getting some recent bad luck behind us on hold, the earnings trend there will get better. The rest of the portfolio performance was in line with expectations. Our EBITDA margin excluding AC is slightly ahead of expectations at 39%. In International Interactive, we found the bottom in the UK in June with a 2% year-over-year increase on a constant currency basis, despite a lower marketing spend by around 30% and reducing bonusing to deliver margin enhancement. July performance was more positive still and saw our highest monthly actives for 2022 so far. The comparisons get easier through the third and into the fourth quarter. We're making good progress with more dynamic jackpot strategies and enhanced customer journeys powered by machine learning. As we all know, the UK white paper was delayed once more and we await a new government in September, but we expect that to arrive with the consultation period beginning soon thereafter. A mixture of currency weakness that impacted the customer experience and lower-than-expected FTDs led to a flat quarter in Asia. FTDs were down as we moved a large affiliate promotion back into Q3, so we expect some improvement then. Also, in the second half, we see growth from our recently launched sportsbook, with the benefit of the World Cup at the end of the year and increased uptake from our refer-a-friend program that is gaining traction in the region. We will continue to harvest Spain while winding down the rest of Europe. North America Interactive is still in ramp-up mode, despite having an early version of the product and without the full feature set we have in the UK. New Jersey had almost $3 million of NGR in our B2C iCasino in June, with a contribution margin in the mid-30s. We expect New Jersey B2C to continue to grow and be profitable for the rest of the year. We are targeting a 6% to 8% market share in 2023 after the implementation of omnichannel rewards by the end of this year, along with improvements in payment processing and marketing tools. With a CPA under $250 before marketing tech stack improvements, New Jersey is the model we will apply to the rest of our North American rollout. Each state will be different and our focus is on creating a blueprint for each state of a similar type before we invest in that rollout. iCasino states are our priority. We will focus our resources in live markets, including Pennsylvania and Ontario, as well as states we believe will regulate iGaming in the next two years. Our foundational sports product is now live in Arizona and New York and will be greatly enhanced by the integration of a much higher volume of sports and events over the coming months. Our player funnel continues to evolve, leveraging our unique asset collection. Our model is to focus on minimizing and optimizing customer acquisition costs and building a loyalty loop for continuous engagement, lowering churn, and driving the customer experience. Over the next year, we'll continue to integrate with our casino database, providing a unified wallet and omnichannel rewards, and develop owned proprietary technologies that provide customers with unique engaging experiences everywhere. Our partnership with Sinclair today provides strong awareness for the Bally's brand. But at this point, we've not taken full advantage of the Sinclair relationship more broadly, despite adding around 100,000 players to our free-to-play offering promoted by Bally Sports. We are working together with Sinclair to design and build a watch-and-bet product that will further evolve our strategy and keep our cost of acquisition down. Our focus is on the continued development of our product and the market blueprints, rather than an aggressive rollout strategy. Now I wanted us to take a few minutes to cover the exciting developments in Chicago. Technology isn't going to be everything to online gaming; we also need flagship properties that establish our brand presence and provide a true omnichannel experience. So let me turn it over to George to introduce the Bally Chicago team and discuss the road ahead for that development.

Thank you, Lee, and thank you all for joining us on this call this morning. So in May, we were selected as the winner to build a unique casino property in downtown Chicago. Demand for gaming in Chicago is in excess of supply, with many players leaving the city and the state of Illinois to game elsewhere. Despite being the third-largest city in the U.S. with 55 million visitors to the city and 85 million passengers through the airport annually, the City of Chicago has little direct benefit from gaming. That dynamic will now change with our $1.7 billion project. Bally's Chicago will have community ownership, locally focused jobs, and investments that will improve the infrastructure of the city for generations to come. We will open a temporary facility in June 2023 at the Medinah Temple in the heart of Chicago. The site and location of that project is unique and will help develop the customer list in support of Bally's Interactive and ultimately the opening of the permanent facility. We expect to invest $70 million to open the temporary facility, and the property is projected to deliver at least $50 million of EBITDAR in the first year of opening, not counting any benefits to Bally's Interactive. The permanent facility is scheduled to open in June 2026. We expect to have 3,400 slot positions and 173 table games, generating $400 win per unit and $4,600 win per unit respectively. These forecasts are just 50% of the unit performance of our nearest competitor. We expect at least $250 million of EBITDAR from the property in the first year, factoring in the upside from synergies between retail and digital. After acquiring the Bally's brand in 2020, the Board of Bally's was very focused on building a team that would support our higher ambitions for flagship properties that would grow our brand and integrate our rapidly developing North American Interactive business. Over the past year, we've hired two seasoned executives to lead those efforts. With me today are Joyen Vakil, who has almost 30 years of casino development and design experience, and was most recently with MGM for 20 years leading their design and development office. Also with me is Ameet Patel, who joins us from Penn National with more than 20 years of gaming experience and will be the executive overseeing Bally's Chicago temporary and permanent facilities. We continue to hire up for Bally's Chicago. Over the coming months, I'll be happy to introduce you to Joyen and Ameet to discuss the project, and we will continue to keep the market abreast of developments on the property. Now I'm going to turn it back to Bobby.

Thanks, George. Moving to the segment details. Casinos and Resorts reported $99 million of EBITDAR in the quarter. This includes a negative $3 million of EBITDAR for Atlantic City. Excluding Atlantic City, EBITDAR margins were 39.2%, in line with our targets of high 30s. EBITDA for the quarter excludes $3 million of rent to GLPI associated with Tropicana, Las Vegas. That rent will become part of reported triple net rent when we close on Tropicana at the end of September. International Interactive had approximately $83 million of EBITDA, at a staggering 35.2% margin. The UK was down 6% year-over-year on a constant currency basis, and Asia was flat. As Lee discussed, marketing was off in the UK by 30% relative to budget as we focus on profitability and a highly efficient spend. North America Interactive had $17 million of negative EBITDA. New Jersey had a little bit more than $6 million of revenues, slightly offset by negative revenue numbers in the other states. We have removed free play to lower the drag those states have on the overall business. We have updated our 2022 financial forecast to reflect adverse FX headwinds, reset in Atlantic City in actual results for the first half of the year. At current FX rates, we expect revenue to be $2.2 billion to $2.3 billion and adjusted EBITDA to be $535 million to $550 million, including $60 million of North America Interactive EBITDA losses. We continue to focus on profitability and cutting costs, but some of the cost cuts will only occur with five months left in the year. We are lowering capital expenditures for the rest of the year from $270 million to $250 million to reflect a more cautious approach into the rest of the year. Rent expense will now be $52 million for the year, with the Tropicana Las Vegas scheduled to close on September 30. We expect the Tropicana to generate approximately $6 million of EBITDAR in the fourth quarter, which offsets the incremental rent expense. On July 27, we closed our previously announced tender, repurchasing 4.7 million shares for a total of $103 million. Pro forma for the tender, common shares outstanding are 48 million and we have incremental warrants, options, and other dilution of 13 million shares. 61 million is the shares outstanding number you should use. We ended the quarter with $3.4 billion of debt, $176 million of cash, and no amounts drawn on our revolver. We have ample liquidity to fund all of our announced projects and continue to invest in the North America Interactive business. Our long-term commitment is to be sub-five times debt to EBITDA, which we expect to hit in mid-2024. At the end of June, we announced a real estate sale to GLPI. For now, we anticipate that sale to bring in $635 million of cash proceeds on a tax-free basis. The incremental rent on the $635 million is $48.5 million. We continue to evaluate potential consent that would allow for a sale of Lincoln as well. We expect either transaction to close at the end of the year, and our updated guidance reflects a 12/31/2022 closing date. In our Investor Relations presentation on our website, we have updated our three-year cash forecast. Free cash flow excluding the new rents from the sale of Biloxi Tiverton, which will be used to fund future growth, is $280 million in 2023. With our share count of 61 million, we get to near $5 of cash earnings from 2023 and $6 in 2024 while maintaining significant cash on our balance sheet. We will continue to invest this free cash flow and cash on balance sheet to drive shareholder value. With that, let's open up the call to Q&A.

We'll take our first question from Jeff Stantial from Stifel.

Good morning everyone. Thank you for taking our questions. Bobby, you have previously discussed some milestones regarding foreign exchange, and I was wondering if you could provide an update on that. I recall that an 8% change had a minimal impact on EBITDA. Could you help us understand how a declining pound and euro might affect EBITDA, so we can be prepared for any future fluctuations in foreign exchange?

Yes. So, FX is off 10% and that's a $20 million hit when you factor in Asian currencies as well. So, the Asian business is denominated in USD, but we've seen significant indirect volatility from the consumer. With currency where it is, including Asian currencies, you should look at that as about a $20 million hit.

Okay, great. That's helpful. Thank you. And then on the brick-and-mortar business it sounds like excluding Atlantic City, things are going according to plan. Just curious in Q1, you talked about some softening lower end of the database in certain markets. Can we get an update there? Has that stayed relatively stable? Has it gotten worse, or better? Just any thoughts around the consumer amidst the persistent inflation we're dealing with would be great.

Sure. I think the trends that we outlined in Q1, Jeff, have held really through Q2. So, that's exactly where we are. Strengthening in the higher end of the database, some softness, but not huge in the lower-income area and properties that we have there. But it really is as it's Q1. We were bracing ourselves for Q2, making sure we had a very tight eye on costs. We will continue to do that through the second half of the year because we would anticipate some inflationary pressures. We didn't see any increase from what we've already seen in Q1; Q2 has been as is.

Great, that's really helpful. And then if I might just squeeze in one more. Any thoughts on the planned project for Tropicana heading into the deal close or stay tuned there?

So, for Trop, we will continue to operate the property. It's well-known that we plan to develop it at some point in the future, but we will manage the property as it is for at least the next 12 months while we identify our plans and the partnerships we want to pursue moving forward.

Great. Very helpful. Thank you all.

Thank you.

Our next question comes from Barry Jonas from Truist Securities.

Great. Thanks for taking my questions. I actually had a few around the Chicago project. Maybe you can start by talking about the next steps from here? And any risks maybe that you see for getting the full project to completion, specifically touching on inflation, supply chain risks, and such? Thanks.

Sure. George, do you want to?

Sure. Thank you, Lee. This is George. Hi, Barry. I’m going to direct this question to Joyen Vakil, who I introduced earlier in the call. He is overseeing the development and construction of the project, so I will pass it over to Joyen.

Thank you, George, and good morning Barry and everyone. During the development phase of the project, we considered many common risk factors while budgeting. We are confident about the project schedule and are on track with all planned dates, including the submission of drawings for the temporary facility in September, which will lead us into the construction phase. The same applies to the permanent facility. We are working closely together, identifying all necessary site factors and long lead items. We have also accounted for potential inflationary and escalation factors in our budgets. Overall, we are pleased with our progress and how we are managing the process. We have strong relationships and are making good progress with agency approvals and community outreach programs.

Great. And could you maybe talk about your level of confidence around the EBITDA numbers you're forecasting for both the temporary and permanent facilities?

Sure. This is George again, Barry. I'm going to pass this over to Amit Patel, who will actually be overseeing the operations for both the temporary and the permanent facility.

Thanks, George. Good morning, Barry. It's good to hear from you. As far as the temporary goes, I just wanted to add a couple of comments on what Joyen mentioned earlier. When you look at our risk factors going into the temporary facilities, there are really two things that we're keeping a laser-sharp focus on. One is the inflationary pressures and how are we making sure that our pricing models continue to deliver on the numbers that we've provided for our cost and completion of the project. And number two, we're keeping a very close eye on the supply chain as well and some of the long lead items. We've taken surveys of our manufacturers right now, the key manufacturers who supply the slot machines and the parts to us. We are actually going ahead and purchasing slot machines as we speak. In the next 90 days, our thought process is we want to stay ahead of the supply chain and make sure that we would rather have these slot machines in our warehouse than worry about them in the first half of 2023. When it comes to the operating model, Barry, I think the numbers speak for themselves. We alluded earlier to the visitations that we have in the City of Chicago. Just remember, we will be the biggest beneficiary of the tourist market that is reviving at a very fast rate in the City of Chicago. We are going to get the highest participation of the unrated play in Chicago based on our location and where the fundamentals of the tourism are in the city. We've looked at and talked to several key hotel operators in downtown Chicago. Chris Jewett, our Chief Development Officer and I have talked to these hotel operators, and they are seeing a very healthy sign of increased hotel visitation coming back to the city as we speak in the last six months. When you look at those fundamentals, you do the math with what our nearest competitors do with reverse numbers. We have promised the city that we will have 800 gaming positions at our temporary facility, which is the Medinah Temple. For those of you who have not been to this site, it is an absolutely stunning building right in the heart of the district in Chicago. It allows us to capitalize on the tourist market there. On top of that, when you look at the numbers we have on win per unit projected here, there is significant upside just from the number of positions that we've set for the city's 800 positions. We are easily going to exceed that expectation, and as a result, we should be able to deliver on the EBITDA and revenue numbers we're giving out for table games win per unit and slots as well.

Great. Okay. Thank you. Really appreciate all that color.

Thanks, Barry.

Our next question comes from Chad Beynon from Macquarie.

Hi, good morning. Thanks for taking my question. First I wanted to ask about International Interactive, very impressive in terms of the margins and kind of holding in EBITDA there. So with marketing off 30%, as you mentioned, what have you seen with the players? How have they responded to the reduction of marketing? Can you talk a little bit about the number of users or kind of the ARPDAU just kind of what you're seeing on the back of that? Thanks.

Sure. Thanks, Chad. Really astounding results, particularly in the fact that we took marketing down heavily but only reduced our FTD count by 9%, having taken marketing down about 30%. So, there's real efficiency in the spend. We did it for a couple of reasons. One was some changing dynamics on Google options and people being forced to log into Google to be age-verified, which was causing some inflationary pressure that we decided we didn't want to chase until that settled down. We are also ensuring we are preparing for any further inflationary pressure that we might see in the consumer base. If you remember, when we reported Q1, we said we felt we were seeing some softening in the UK consumer. That trend has not continued. So we now have a strengthening of the consumer base in the UK during Q2 and what we've seen through July. We're very pleased with where we've gotten to in terms of those marketing efficiencies. There have also been efficiencies on the bonusing side too. We'll continue with that strategy for now until we get absolute confidence in the strength of the consumer for the rest of the year.

Thanks, Lee. And then turning to the US with your 6% to 8% market share goal with Bally's New Jersey by 2023. What has given you the confidence that you can reach that level, just given that it's a pretty competitive market? You have some other competitors that are ramping. And then beyond that, how should we think about some goals and timelines for other markets like Pennsylvania and Ontario? Thank you.

Sure. Thank you. Yes, it is an aggressive target; we're going for it. We think that we can get there. Based on all the trends we're seeing in New Jersey today, we're probably just below a 3% market share. So, we think we can double that during 2023 and actually take that market further. If you remember, when Gamesys was working with Tropicana, I think we had about 6.5% share in the New Jersey market. We are seeing excellent trends in terms of cross-selling to the casino database. We've made real strides in upgrading our product. The product in our New Jersey casino was still not on parity with the UK. So, we're still migrating features that we have in the UK market over to New Jersey while upgrading what we have on the omnichannel side and really tying in the rewards program. The trajectory up to now has been great. We've got a lot more product to bring and a lot more omni to develop over the next 12 months. That’s what's driving our confidence in the New Jersey market. In terms of what comes next, as I mentioned, we're focused on developing the product and the blueprints state by state. The new technology we’ve put together between Gamesys, that works to create our foundational OSB product, we're pleased with it but we need to do more. There's a lot of content integration over the next three months that will see the volume of sports and events increase massively on that product. There is feature development that we still want to do. So, rather than spending marketing dollars against a product that we don't think will cut through, we're going to withhold those marketing dollars until we've really developed the product to the stage we want to reach. In terms of what's next, we'll be leaning into our gaming states that we think are pending legislation or already exist. We launched a web-only product in Ontario a couple of weeks ago, and it has done quite well out of the gate. We expect Ontario to be the first place where we deploy our combined app for sports and iGaming during the second half of the year; we'll also be looking at Pennsylvania, where we're targeting a license around the property, as well as places like Indiana and Illinois where we think we can make progress.

That's great. Appreciate it. Thanks for all the detail.

Thank you.

Our next question comes from Ricardo Chinchilla from Deutsche Bank.

First a housekeeping item. I was wondering if you could provide the EBITDA breakdown for debt holders, the one using for covenant analysis purposes.

We don't have that, but Rhode Island LTM EBITDA is $644 million.

Perfect. Moving into the forecast that you have for 2023 and 2024, could you please provide a little bit more color on what's implied for Atlantic City into next year and for Tropicana Las Vegas? Because I see that you have like $6 million per quarter, but we analyze that it’s like $24 million, and the rent is almost $23 million. So I was wondering how accretive that is going to be into earnings for next year? And when is the Pennsylvania property opening according to your estimates?

Yeah. So on Tropicana, the way viewing the property as is today is the rent associated with it is $22.5 million, and it will generate $20 million to $25 million of EBITDAR. So, earnings neutral. We do factor in next year our JV with IGT, which generates today about $9 million of EBITDA that goes from 23% to 40%. We believe Atlantic City will get to $10 million to $20 million in the next two years. It's a very seasonal property. So TBD on that. We have implemented $10 million of cost savings, and hold for the past six months has been underperforming. We view International Interactive as flat into 2023 as we work through some of the dynamics with the white paper. Your assumptions are not aggressive. We just have a lot of projects in the $10 million to $20 million range that will turn on in the next year. Pennsylvania will be a project for us in sometime in 2023.

Great. Last question for me. Could you please comment a little bit more on your strategy towards the sale-leaseback transaction of Lincoln? It seems like based on the forecast you have provided that you could do fine just with selling Biloxi rather than going for the sale-leaseback proceeds from Lincoln. Any commentary on what potentially could be the uses of the incremental money for that? What are you guys thinking about the mandate for the company with that money, particularly with regards to your share repurchase strategy?

Yeah. So, the Lincoln-Tiverton transaction was $1 billion. The Biloxi-Tiverton transaction is $635 million. But on the $1 billion transaction, the bid-ask on how much pay down was too wide. The Lincoln transaction turned out to be liquidity-neutral, or slightly worse. It's better for the company to leave Lincoln behind, do Tiverton-Biloxi unless we get to some reasonable agreement with our lenders. Lincoln is a flagship property. The IGT JV is strong, and we're building out 40,000 square feet. We're gaining momentum in bringing back some of our Asian play from the Wynn. So maybe we sell or do a sale-leaseback on Lincoln a year or two from now to fund the next growth phase of the company. From a share repurchase perspective, we did perform a tender for $103 million and will continue to buy back shares consistently to help drive shareholder value.

Our next question comes from Dan Politzer from Wells Fargo.

Hey, good morning, everyone. Thanks for taking my questions. I wanted to hit on the regionals and maybe this is a question for George. But across your properties, what are you seeing in terms of the promotional environment from larger competitors, smaller competitors, and across different markets?

Sure Dan. I think a good data point for you to look at is what Lee said earlier: margins are not only stabilizing but improving. So, net of AC we're at 39%, I think it's 39.5% margin. If you get granular to answer your question about the regions that we operate in, if you look at Rhode Island, we're seeing Encore really starting to focus or shift their focus closer in on their market, really towards the density of the population around them. So that touches on the edges of our market and has no influence on our promotional activities. We primarily focus on free play activity and certainly have promotional activity as well. However, we don't see any impact on that market, and it continues to perform. If you look at another region, I would point to Evansville as somewhat of a protected market; our cost structure there is predictable, and we're maintaining margins alongside revenue. Biloxi continues to drive profitability from our higher segments of our database. That continues to improve as well. In Kansas City, the market is focused on driving market share, which drops that market share growth to the bottom line. Overall, we're very comfortable with our operating model at this time. The only markets that seem to be performing not as well would be those of lower demographics by household income, like Vicksburg.

Got it. And then just switching to Interactive. Can you provide any color on early New York progress and your appetite to enter additional states that might be launching next year? How do you think about integrating the Sinclair media components into the app to have a more competitive offering?

Sure. Thanks Dan. I mentioned a few states earlier. We're going to lean very heavily into iGaming states—either iGaming states that are live today or those we believe have a high chance of legislation over the next couple of years. Indiana is one of those interesting states for us, where we have both RSA and casino coverage. Regarding product development and how that interplays with spending, the product isn't exactly where we want it to be today. Even the iGaming product in New Jersey, I said we've got lots of things that we can still migrate over from the UK, which I think will enhance that product. The sports product which is live now in Arizona and New York hasn't had aggressive spending behind it yet, because we still have a number of content integrations to complete. The likes of Radar Genius, IMG, etc. are all coming, and that will bring a higher volume of sports events. We haven't been pushing it until we've got a much richer event lineup inside of that app. That said, in June, we did our fifth drop of that app, and it became foundational for us. We think we have a number of important features. However, we will continue to develop and drop further features into that app. In terms of a road map, we’ll add sports to New Jersey over time, together with Ontario, which will have our first combined app for sports and iGaming in the second half of the year, alongside expansions into Indiana, Pennsylvania, and Illinois.

Got it. Thanks for the detail.

Thank you.

Our next question comes from Jonnathan Navarrete from Cowen.

Good morning. This is Jonnathan in for Lance. Thank you for taking our question. The first one is, Bobby, you mentioned that international got like a $20 million FX headwind this quarter, correct?

On an EBITDA basis.

Okay. And in terms of revenue then, what was the impact for the second quarter? What can we expect for the next two?

Revenue for International Interactive was down 14% year-over-year on a constant basis, down 5%. You could say there is a 9% FX hit, but there is an incremental issue with FX related to Asian currencies. We operate in USD, but the player lives and thinks in Asian currency. Those consumers have definitely pulled back. Our guidance assumes that currency is effectively a 10% headwind into 2022 and that's how we're thinking about it. There are also issues that are not directly FX related or FX translation; they are more that the consumer is thinking and operating differently.

Sure. That makes sense. And in terms of for the next two quarters, can we expect that the second quarter in international would be the lowest, or can we expect incremental improvement from here?

Second quarter is the low. Second quarter is the lowest.

Understood. Then maybe a little bit of an update on New York downstate casino. I understand you're probably limited in what you can share. But I just want to know how you guys are thinking about the opportunity still and could you share in terms of what would investment in a potential property kind of look like or amount to, if you will?

We are still interested and exploring potential sites. We expect the RFP process to start later this year or early next year, and we plan to participate, but it is still in the development stage. There is nothing more to share at this time.

Got it. And my last one, with a new prime minister coming in into the UK, what if any changes can we expect from the UK gambling regulator, or should it stay the course and nothing will change from your perspective?

Well, I mean new prime minister, same party. So I don't expect radical shifts from the former prime minister to whoever succeeds him. A lot of work has already been completed with the relevant ministry. We'll have to wait and see whether it's through Trust on September 5, but we wouldn't expect any radical departures from the current trajectory. I think from our and the industry's perspective, we'd like to get it out there. We'd like to get the consultation done, and we'd like to be on the other side of it so we know what exactly we're working with. Everyone wants stability. I've said many times that whenever we've experienced a regulatory shift in the UK, over the following 18 months we've been a net winner, and I expect it to be the same here.

Got it. Thank you.

Thank you.

Next question comes from David Katz from Jefferies.

Good morning. Thanks for taking my questions. Understanding the Interactive strategy and performance and the land-based stability is clear. Can you just talk a bit more broadly about the capital strategy? Where are we trying to get to in terms of owned versus leased? What does the leverage look like? If you can help us with, obviously there are some CapEx out there, but some repurchases, how you expect that to progress over the next six months, one year, three years, et cetera?

Yes. Thanks, David. I'll let Bobby pick that one up.

Yes. Going into 2023, rent is sort of $120 million on $400 plus million of EBITDAR when you factor in Tropicana's upside from Kansas City, IGT, Pennsylvania, and Chicago. Our land assets are a core and strategic asset of the company. But at the end of the day, if someone is willing to pay me 14 times for the real estate under Lincoln, then we would do that and invest in higher-return projects. Our internal ROIC is 15%. If there are projects to pursue, like Chicago, we continue to evaluate what return we can get in Las Vegas, but the climate or volatility in the market has brought M&A back. We’ve proven we can buy assets for five to six times EBITDA, so if we can use our balance sheet, that’s very attractive. As I said in the call, we focus on EBITDA from a leverage perspective and we will be sub-five times by mid-2024.

Okay. Thanks very much.

Thanks, David.

Our last question comes from Jordan Bender from JMP Securities.

Good morning. Thanks for taking my question. To follow up on the white paper comments, have you guys taken any preemptive actions ahead of maybe a ruling there? And was any of the marketing reduction in the quarter, possibly related to that as well?

Yes, sure. Thanks, Jordan. We've been taking preemptive actions on the white paper for about the last three years now. We feel very well prepared for it. We've been gradually reducing slot states across the business for a while now, and we're moving towards a max stake of £25 across the business in the UK. We've been adjusting our jackpot strategy, meaning more payouts to more players but at lower levels. That strategy involves reinvestment which will be important once we get different sets of thresholds to adhere to for players, which will come into play during the evolution of the white paper. I think we’ve had ample time to prepare for what this might mean for us in the UK market, and we’ve actually made a lot of progress against that.

Great. And then, you reiterated the $60 million loss for North America Interactive for the year. I was wondering if you previously guided to about $125 million for the year. I was wondering, if that still is in place.

For revenue? Yes, we're not focused on revenues. At the end of the day, we can acquire revenues, but we're just not going to do that.

Yes. Our focus is very much on further developing that product. We are continuing to invest in that. We believe that revenues will come to us over time, but that's not our focus for this year. It's more about the quality of that product and targeting the right markets in the right depth.

Awesome. Thanks, Lee. Thanks, Bobby.

Thank you.

And no more questions at this time. We'll take our next question.

Thank you, operator, and thanks everyone. We'll be on the road the next few months, and hopefully we’ll see some of you at G2E. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.