Bally's Corp Q2 FY2023 Earnings Call

Good day, and welcome to the Bally's Corporation Second Quarter 2023 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 session. Please be advised that today's conference is being recorded. I'd now like to turn the call over to Jeff Chalson, VP of Corporate Development and Strategy for Bally's. Please go ahead, sir.

Good morning and thank you for joining us on today's call. The earnings release and presentation that accompany this call are available on our website in the Investor Relations section at www.ballys.com. With me on today's call are Chief Executive Officer, Robeson Reeves; George Papanier, Bally's President; Marcus Glover, Bally's Chief Financial Officer; Jama Patel, Bally's Vice Chairman; and Charles Diao, Bally's Treasurer. 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 nonrecurring expenses and one-time costs. Today's call is also being broadcast live on our investors' website and will be available for replay shortly after the completion of this call. Let me hand the call over to Robeson.

Thank you, Jeff, and hello, everyone. This quarter saw Bally's making strides with new initiatives and achieving project milestones setting a strong foundation for 2023 and beyond. Our core casino and resorts business produced record-setting second quarter revenue and EBITDA results with improving margins. International Interactive remained solid, led by the U.K., which also produced record-setting second quarter revenue results driven by market share gains. North America interactive iGaming continues to ramp up positively as we see the benefits of Games technology taking hold. We have made significant progress transitioning Bally Bet onto the Kambi and White Hat technology platforms, which is on track to roll out this summer. We intend to be live in three states by summer's end and at least seven states and four retail locations, two are already operational by the end of 2023. With that in mind, we are pleased to reiterate our full year earnings guidance. We expect somewhat better performance from our core casinos and resorts and international Interactive businesses versus our original expectations, slightly offset by an expected additional $10 million in costs in North America Interactive at the midpoint of our range, relating to our Pennsylvania iGaming launch, the transition of Bally Bet and some investments we have made in our omnichannel, including Bally Live. Though we expect some added development cost outlays in the second half '23, the spend is expected to reduce as we grow and scale the North America interactive business. Our confidence in our guidance is premised on our core businesses remaining strong. Our growth projects coming online and our North America interactive iGaming business continuing to ramp up. Earnings aside, once again, we have had a very active quarter in terms of our continued evolution of our company. We welcomed a new CFO, Marcus Glover, and a new Corporate Treasurer, Charlie Diao to our management team. Jama Patel, a long-serving Bally's board member has also seamlessly stepped into the role of Vice Chairman. Each has been a tremendous addition to Bally's and are working vigorously at integrating themselves into the Company, improving our culture and our workflows. I remain deeply impressed with our global team and the progress we continue to make integrating Bally's three businesses. On an operating basis, we've seen several positive catalysts with long-term company impact and continue to advance our announced development projects. As you all know, we announced the deal with the Oakland A's of Major League Baseball and our partners at GLPI for the A's as to relocate their stadium onto nine acres of our Las Vegas Tropicana site. We couldn't be more excited regarding this transformational, one-of-a-kind development project, along with the option value and long-term opportunity this announcement represents for our company. While the planning process is only in the beginning phase, we'll share additional details as they emerge over the next 18 to 24 months. We closed on the acquisition of Tropicana in late September of '22 and have already materially increased the value of this asset, a testament to our management team's creativity and ingenuity. Next, we have made tremendous progress on the development of our temporary casino at the Medinah Temple in Chicago after receiving preliminary suitability from the IGB in early June. The project remains on schedule for a September opening, which is estimated to generate $50 million to $60 million of EBITDA in 2024. The feedback we have received from those who have toured the development has been quite positive. As for the permanent facility, we were successful in negotiating a deal with the Tribune Company to vacate the building by mid-2024 so we can begin the development of the casino at that time. We continue to expect the property to be opened in 2026. We remain confident in the significant pent-up consumer demand for this project and eagerly anticipate generating results. In late April, we completed our renovation and expansion of our marquee Twin Rivers property in Lincoln, Rhode Island, and we are progressing towards completion of our Kansas City properties transformation. Both capital projects should be significant contributors to our organic growth for years to come. Additionally, the smoking ban that was implemented in Shreveport, Louisiana in 2020 was repealed beginning in June. We believe this will be an incremental driver of performance for the property as its competitors just across the border in Bossier City do not have a smoking ban. When the smoking ban was initially implemented, business fell over 20% from its peak and is yet to fully recover. As for the U.K. white paper, which was released in late April, we continue to review the proposed measures and will work constructively with both the government and Gambling Commission to find an effective solution, which ensures that reforms are appropriate and guarantee a safe and sustainable future. As we discussed on our last earnings call, we're in a strong position as we've been preparing our business strategy in compliance for some time. We embrace regulation and recognize that gaming is a public-private partnership. At its core, our international Interactive business is performing very well, especially in the U.K., where we continue to gain incremental market share. The regulatory environment in the U.K. challenges smaller competitors causing surrender. This allows compliant larger entities to consolidate the market and expand their reach. Next, we launched iGaming in Pennsylvania in early June. While it's still quite early, we are pleased with the initial results. We believe our early performance in PA is a result of strong brand recognition and database. We are only scratching the surface of our player database omnichannel opportunities. Further, the Rhode Island legislature passed a bill to legalize iGaming in the state, naming Bally's as a sole provider. This is a very positive development given our foothold in the state and our seasoned database. We thank the Rhode Island legislature for being such great partners. It is anticipated that we'll launch in March of 2024. Heading into '24, we are also excited about the prospect of launching the Bally's brand and online sports betting internationally. Post our Bally Bet rollout, we'll be back on a path to diversify our revenues and EBITDA streams with ample cross-sell opportunities between our retail and digital businesses. This, in turn, will support our vision of becoming a premier, full-service, vertically integrated Casinos & Resorts iGaming and online sports betting company, allowing us to leverage our Bally's brand globally. Turning to our operating segments' quarterly results. The Casinos & Resorts segment continues to trend well even with certain properties facing incremental competition as our core Casinos & Resorts customer remains resilient. While we're keeping a close eye on spending trends and the health of our consumer generally, we are pleased with our overall portfolio. We generated record 2Q revenues of $333 million. That's up 11% year-on-year and adjusted EBITDA of $111 million, that's up 12% year-on-year, as George and his team continue to drive performance. We are seeing the benefits of the property improvements, reporting systems, centralized procurement and cost controls implemented throughout the portfolio taking hold. Importantly, as we discussed earlier this year, our core portfolio's near-term CapEx cycle has peaked as several of our growth projects have come to or are nearing completion. We expect to continue delivering consistent operating performance from this core. International Interactive had a strong second quarter and is off to a robust first half of the year with continued algorithmic marketing optimizations taking place. The U.K. business continues to be the main driver of our performance, growing 12% in the second quarter, well ahead of the market. The formula of ARPU up, FTDs up while CPA is down significantly continues to play out and drive performance. In Asia, we continue to look for stabilization after several months of increased volatility and performance. We've implemented changes and are working diligently to address this. International Interactive margins have settled in the low mid-30s, and we believe we can sustain margins at or above these levels. This is inclusive of our plans to reinvest in our core U.K. and Asia businesses, and we continue to see growth opportunities in Europe, Asia, and the rest of the world with a focus on Brazil, including launching the Bally's brand and OSB in 2024. Turning back to North America Interactive. We remain keenly focused on growing our iGaming footprint. Our share in New Jersey continues to creep higher since surpassing 4% in the first quarter, and we remain on track to achieving our 6% to 8% longer-term share goal. We are working on building our presence in Ontario, and we're excited about the results we've seen thus far in Pennsylvania since launching in early June. Overall, our iGaming business is generating positive returns, and we are optimistic. We also look forward to the recently passed iGaming legislation in Rhode Island, a potential long-term game changer for our iGaming business. In summary, our goals for the remainder of 2023 and into 2024 include: open the Chicago temporary casino in September, grow North America Interactive iGaming market share profitably, roll out Bally Bet beginning this summer with our new technology partners, harness our omnichannel data capabilities and grow the Bally's brand globally, including OSB. In addition to our growth initiatives, it is important to emphasize that our team remains focused on growing our revenues and adjusted EBITDA for our core casinos and resorts and our international Interactive segments, and again, are reiterating our guidance for the full year. Before turning to Marcus, I'd once again welcome him to the Company.

Thanks, Robeson. As you all know, this was my first quarter as the CFO of Bally's after spending nearly two decades in the industry in a variety of leadership positions. A couple of months into my tenure, I reviewed each of our business segments and had the opportunity to meet some of our investors. As an organization, we remain focused on integrating and improving our operating and financial performance, managing our development pipeline and growing our international and domestic iGaming businesses. Later this summer, we will also begin rolling out our Bally Bet OSB business in the United States. We have several amazing new opportunities ahead of us, and our team is centered on executing against these priorities. For the quarter, we generated record second quarter revenues of $606 million, which is an increase of 10% year-on-year. Adjusted EBITDA of $161 million and adjusted EBITDA of $130 million after accounting for rent expense of $31 million. Our adjusted EBITDA margin of 26.6% and our adjusted EBITDA margin was 21.5%. We are pleased with how our Casinos & Resorts portfolio performed with strength at our Rhode Island in Kansas City properties, offset slightly by some headwinds experienced between Atlantic City, Tropicana and Las Vegas and Evansville, which we are working through. Irrespective, we are pleased with the resiliency and performance of the Casino & Resorts segment within the quarter. Overall, Casinos & Resorts reported revenues of $333 million, which is an 11% year-on-year increase and $111 million of adjusted EBITDA, which is a 12% year-on-year increase. Excluding Atlantic City and Tropicana, which are lower-margin properties, EBITDA margins were a solid 39.4% for the core portfolio, including these properties, EBITDA margins were 33.3%. International Interactive generated revenues of $248 million and $84 million of adjusted EBITDA at a 33.9% margin. Results were driven by impressive strength in the U.K., a result of our content and marketing optimizations. The U.K. was up a robust 12% for the quarter in both dollar and British pound while international increased 6% overall. We will continue to invest in the business while also exploring opportunities in other geographies as we had discussed in the past. There is opportunity for responsible growth and to expand the Bally's brand and OSB capabilities throughout these markets. Our long-term International Interactive adjusted EBITDA margin target remains in excess of 30%. North America Interactive generated revenues of $25 million and negative $18 million of adjusted EBITDA. We are very happy with our performance in iGaming, particularly in New Jersey. New Jersey gross profit contribution is approximately a little over $1 million a month and growing. We continue to work on building out our presence in Ontario, and we launched in Pennsylvania in early June. The initial results have exceeded our expectations, and we are highly anticipating the launch of iGaming in Rhode Island in March of '24, where we will be the sole provider. Our iGaming business is generating positive contribution margins, which we anticipate will continue to strengthen. Turning to OSB, as Robeson mentioned earlier, we incurred additional costs in the quarter of approximately $7 million versus the first quarter, including our launch in PA for iGaming. We look forward to the transition of Bally Bet and the rollout onto our technology partners' platform, Kambi and White Hat Gaming. The rollout schedule will begin in three states this summer and at least seven states and four retail gaming locations by the end of 2023, two of which are already live. We also intend to leverage these partnerships in OSB in the U.K. and in Europe in 2024. Additionally, we made small IP content-related investments in Minor League Baseball and other properties to build out our Bally Live omnichannel initiative. We believe Bally Live will prove to be a solid customer acquisition tool and future revenue driver. Corporate expense for the second quarter came in at $16 million. This remains slightly elevated as we are still managing through some short-term cost impact, though we are confident in expense reduction measures moving forward. On an operating basis, with the exception of a few instances mentioned, we haven't seen a significant change in consumer spending patterns at our Casino & Resorts. That said, we are keeping a close eye on general economic conditions. As we anticipate changes in customer behaviors and/or spending, we have levers at our disposal in order to maintain our strong margin profile. With that in mind for the Company overall, we are maintaining our guidance for 2023. Recall our forecast is for us to generate between $2.5 billion and $2.6 billion in revenues and $665 million to $700 million in adjusted EBITDA. This now reflects a loss in North America Interactive of $50 million to $60 million, a $10 million increase at the midpoint. We expect some additional development cost outlays in the second half of '23. Though the spend will reduce as we grow in scale of the North America Interactive business. Our full year estimates are driven by our growth projects within Casino & Resorts and International Interactive businesses remaining strong as we are confident in our global business. This begins with the Chicago temporary facility opening in September and the completion of our Kansas City expansion project later in the third quarter. Additionally, we will benefit from a full quarter of our Twin Rivers renovations and expansion as well as the recently announced smoking ban reversal in Shreveport, Louisiana. This also considers our belief that the white paper release by the U.K. government will have a material impact on our international active financial results and that FX will remain constant. We are also maintaining our 2023 capital expenditure guidance of $160 million, excluding Chicago, with maintenance CapEx at casinos of about $50 million in growth CapEx and casinos of about $70 million. During the quarter, we repurchased approximately 748,500 common shares for an aggregate purchase price of $10.7 million. At the quarter's end, shares outstanding were about $45.6 million, and we have incremental warrants, options, and other dilution of approximately 13.1 million shares. 58.7 million shares outstanding is the right way to look at our capital structure. We have more than $184 million of cash on our balance sheet. The reduction in cash versus last quarter is a result of us restricting cash for the Tribune payment and $3.2 billion of net debt. Lastly, I would like to reiterate my enthusiasm to be part of the Bally's team. The pipeline of projects we have ahead of us in all three of our operating segments are exciting and aligned with our strategic direction and focus. Casino & Resort development and expansion anchored by our Chicago project, enhanced value we have created in Las Vegas regarding the Oakland Stadium transaction. Our iCasino growth trajectory domestically, particularly in New Jersey, Pennsylvania, Ontario, and now in Rhode Island, in addition to the rollout of Bally Bet, the continued consolidation and rationalization within the International Interactive, particularly in the U.K., and continued focus on our balance sheet through maximizing our working capital and addressing the untapped real estate value in our portfolio. Thank you all for listening, and let's now open up the call for Q&A.

Actually, maybe I'll start with Marcus. Can you talk a little bit about how your transition on quarter end is going? Do you have a sense of what's on track in your head if there are some things you may want to adjust?

Yes. Thanks, Barry. It's been actually a whirlwind and exciting at the same time. Our early indication is that I'm joining a very, very impressive team. As you can see in the results, both on the C&R side as well as the International Interactive side, we continue to exceed our expectations and perform, and the teams are working very hard to not stay static in that performance. And so what George and the Casinos & Resorts team have been able to do on the C&R side with the margin profile that you guys see in our results and continue to maintain focus on our development pipeline as well as what Robeson and the team have done overseas, specifically in the U.K., it's a quite impressive team, and we continue to prove we get the most out of the assets we have to manage. And so very impressed and remain excited to join this team.

Great. So I guess with that, I'm curious how you guys are thinking about capital allocation here, specifically the path to deleverage. You've got the Chicago permanent spend coming up. And then I wanted to get your thoughts about how Tropicana spend weighs into that path to deleverage.

Yes, I'll start off with that, and then anyone can chime in. I think right now, Barry, our focus is on our development pipeline with Chicago anchoring that. We feel pretty good about our pathway and some of the early diligence we perform on moving that project forward on a permanent standpoint. As it relates to Tropicana, that pathway is pretty far out, and we feel confident as we move forward with the Chicago firm that we'll be able to solve for Tropicana, not just in the proper development but also in the underwriting of that project as well. But we remain encouraged with the optionality that that project provides us right there on probably the most visible and most trafficked corner in the Las Vegas strip.

Got it. And then if I could just squeeze in one more. iGaming in Rhode Island, I think, really exciting should be interesting to see in the sense that you're the only land-based and online operator in the state. But can you maybe talk about how you think about the potential for omnichannel driving higher spend levels from customers, but also potential risks around online cannibalizing land base.

Yes, I'll take that. Everywhere we've launched and we've seen iGaming alongside casinos and resorts, it's just a different form of engagement. We've seen spend layering on top of one another. This protects us in different times as well. Our biggest growth time there's, call it, seasonality, big storms or whatever in bricks and mortar, we will definitely see significant growth in iGaming. It won't cannibalize; it's additive. People engage both at home and they socialize more in the retail establishment. So we see this as totally incremental. We are the sole operator. I'm very excited about Rhode Island. I think it will be material in driving our iGaming performance and actually North America in attracted business.

Great. In New Jersey, your market share in iGaming has been sitting kind of in that 4% range maybe year-to-date. Can you just kind of bridge us to how you get to your targeted 6% to 8% range? Does it come from the technology side, the product offering? Or do you need to kind of get a little more promotional within that market?

It's going to be driven by how much we can utilize our retail casino database, so more omnichannel, but also significantly, it's a product offering upgrade. So the addition of sports will bring new audiences in. As we know, people bet on sports, but they always bet on iGaming, too. So we see that as the funnel. As we introduce sports into New Jersey, we'll see our share growth.

Great. And then for my follow-up, it's been a little bit of time in Atlantic City since we've seen what that property can generate just given the CapEx in COVID and your takeover of that property. As we hit the high season here during the summer, like how should we think about that return and kind of where do we sit in the timeline of the full return on that property?

Sure, Jordan, this is George. I'll take that. Since we relaunched on Memorial Day 2022, we've had a good summer in 2022, and we continue to ramp the property through the first half of 2023, beating all our expectations. So we're feeling good to see profitability in 2023. And just in July, we want to take July, it was our record month since the acquisition of Atlantic City in both revenue and profitability. So we're feeling good about it.

First, I wanted to dive a little bit deeper into North America Interactive. Obviously, expenses ticked a little bit higher in the second quarter. It looks like you're just flowing that through to your guide. But I guess as we think about the back half of this year into 2024, with the focus on iGaming, Rhode Island coming on, the more continued investment in New Jersey, how should we think about, I guess, the EBITDA ramp? And maybe if you could break out, is sports betting profitable today versus do you think it could be profitable? Or do you really look at that more as a funnel for iGaming?

I look at sports betting much more as a funnel. We will be prudent with our investments when we go into sports. With regards to our estimates on North American activity increasing, it's essentially our balance sheet cash flow spend that comes down sooner. The P&L expenses will come down, but it's not in the same linear way. Yes, we absolutely will be prudent in North America Interactive, but we are very confident about the iGaming opportunities. Pennsylvania has performed well from a launch perspective. We will balance that out from a tax perspective to make sure that we throw off good profitability and time. We're very good in mature, high tax, heavily regulated markets, as you see from our performance in the U.K. So I feel very confident that we'll be able to control and guide North America Interactive. We have significant levers to pull.

Yes. And just to add to that, our model is running well. I think sports is a great launch to engage our customer base, but we will be very prudent and optimize marketing expense as we move forward. Obviously, we have some media partnerships and some rev share agreements that take shape in that segment. But we will be very, very prudent as we move forward with a focus keenly on iGaming and the upside in those markets, specifically New Jersey, Pennsylvania, and then soon to be Rhode Island.

Got it. And then for my follow-up, if we could touch a little bit on Chicago. How do you think about kind of the cash flows this year, next year, and into the coming years leading up to the build-out of the permanent facility? And I guess on the back end of that, how are you thinking about the possibility of doing a sale leaseback for that property and maybe bringing back into some of that capital? Just given that's something you've talked about as it relates to your other owned properties within the portfolio.

Yes. To answer your question, maybe not in order, but obviously, sale-leaseback with our unencumbered real estate remains an option. We're exploring all options. And so we'll continue to engage along that path pretty responsibly. In terms of how we think about coming up with a firm decision on that, obviously, our construction doesn't begin until the second quarter of next year. Tribune didn't get out of their space until July of next year. And so as we get a little bit closer to that date, we'll have a more definitive answer for you around CapEx and how we see that playing out in terms of underwriting.

Just in terms of the cash flows this year, next year for Chicago, any kind of way to think about that?

Yes, this is George. I'll give a little guidance on that. Obviously, we are continuing to be very focused on the opening of the temporary casino, and that looks like it's going to be in September. We've actually increased the scope of the original temporary projects. So we feel there's nice upside to that. I think we were out there with about a $50 million run rate. We're increasing that to $50 million to $60 million annually. And hopefully, there's some continued ramping of that as we build towards the opening of our permanent facility.

Yes. And just right now, we have baked in. Obviously, I think we're a little delayed from what we communicated to you last time on opening, but you could probably for the rest of this year, estimate somewhere between $3.5 million and $5 million a month in terms of impact once we open in Chicago too.

Robeson, I wanted to ask about International Interactive, the strong 12% growth that you posted in the U.K. You outlined kind of what's going on in the market. You do have some tough comps in the back half of the year, just how strong the growth was in that region in 2H '22. Can you help us think about seasonality? What's going on in the market? If you still have additional tailwinds from what you talked about from the fragmentation from the white paper. Just trying to get a sense if this can still be a mid- to high-single-digit growth market going forward.

I have confidence that trends will continue. We are still taking share from smaller players and actually some bigger players too. We'll still see the same sort of low to mid-30s as margin. The consolidation in the market will continue to track on, and we're seeing high volumes of new customers coming into us, which is a great tailwind that will boost us forward. We don't see that trend going away. The introduction later of sports betting, as I described for North America Interactive, will widen the funnel of acquisitions. So I see genuine growth in a mature market. As I said, we were great mature by tax, heavily regulated in competitive markets. That is true for interactive; that is true for bricks and mortar. So I'm very confident in our future in our core markets. They're very robust, and we'll build out other growth opportunities.

Yes. The progress with those discussions continue to remain active. Obviously, we have a great report with our regulatory body in Rhode Island, and we're in discussions now with them about the timing of when that makes sense. And so that remains a viable option for us that we will continue to engage in. And at the right time, we'll have something to communicate to you guys about that transaction.

Starting off on the brick-and-mortar business. Marcus, you mentioned some headwinds for Atlantic City, Tropicana, and Evansville in the prepared remarks. I think George covered Atlantic City a bit earlier during the Q&A, but I was hoping you could just expand a bit more on the trough in Evansville, just what's going on at those two properties? How much an EBITDA headwind as it improved, and kind of what are the efforts underway to get those back on track?

Yes. I'll start off with some remarks and then pass it over to George. In Evansville, there is new and intense competition within an hour's drive of that property. Regarding Tropicana, with the announcement of the A's option, there is likely some uncertainty affecting both customers and employees. The team is trying to demonstrate strength and certainty as much as possible in that market. I’ll let George provide further details on this.

Jeff, thanks, Marcus. The only thing I'll add to that is in Evansville, the competition really started arriving in that market about two years ago. We've had some HHR competition in the neighboring states, and Churchill just recently acquired the Ellis Park, making some improvements there. But it's just been some erosion around the edges, and we've been working to mitigate that on the expense side of our business. So our margins are actually improving. So there's a slight impact there, and we'll retool how we approach the competition in that market. Tropicana, listen, we acquired that towards the end of last year. We're actually ahead of what we anticipated we would do there ahead of last year as well. And we ran into a headwind, which is really the announcement of the A's coming to our site, which obviously is very positive from a valuation perspective. But we're going to focus on the timing as it relates to the A's actually arriving. I think they have one more hurdle. So we're waiting on them to see what their actual timing is, and we'll just react to that and manage the property accordingly up until closure.

Yes. One of the early parts of my assessment is just understanding where the right opportunity is for us. One of the phenomena in the industry is this movement towards shared services and centralization. I think in my experience, having come from environments where that's been somewhat successful in other places would probably left some opportunity by centralizing too much. We're approaching this very carefully to make sure that we don't lose the very essence of what's made Bally successful thus far. George and the team do a phenomenal job on the brick-and-mortar side of maximizing the operational performance at every property we have. As Robeson teed up earlier, we operate in some of the highest tax jurisdictions on some of the most difficult competitive circumstances, and we continue to maintain a very, very strong margin profile. So right now, we're balancing what should be shared service and centralized versus what we allow to remain at the property. And some of that is somewhat fluid right now. We expect to narrow that down and focus on opportunity. But the biggest upside is ensuring that the properties are able to maintain their entrepreneurial spirit and their nimbleness as they can take advantage of opportunities in real time by having the right people in place at the properties. We feel good about the cost opportunities of dialing down some of our corporate expense. And we'll continue to manage that with a keen eye and be very responsible, but make sure that we allow our properties to do their best work by leading the things that make sense to leave at the property.

One of the observations on the digital side for sports and iGaming also is that the U.S. market has been kind of transitioning from spending being a driver of business to product being a driver of volumes. Can you just talk about what you see as your key strengths or key competencies that will sort of help you be successful in that context and/or if you disagree.

Yes, I totally agree that it's about products, right? Product in the end will win out, but what is the product right? It isn't just about having a sports betting offering or the most games available. It's actually about how you utilize your data platforms. Our essence is about how we can analyze, understand the consumer needs, test, and integrate that into a product experience. That is the true capability, and that's what's driven growth historically for all of our interactive business because then you can spend more effectively to acquire exactly the right consumer and retain that consumer by communicating to them in their language with the right rewards at an optimized level. That is why we have accepted that, you know what, let's outsource our sports betting product, but we'll integrate our intelligence and our brainpower to make sure it's the best possible experience for each user.

That really sets up my follow-up question, which is how you're thinking about the aspects of the value chain you ultimately would like to own versus outsourcing and where you see the advantages one way or the other.

My perspective is that before achieving scale, a lease model is very practical. As you expand, it becomes important to manage fixed costs alongside variable ones. I believe the most significant value in our offerings lies in omnidata. I am a strong advocate for data, as it is central to my background, and I understand that this is key to long-term success. It is also how we achieve the best profit margins in our business. I am committed to owning data to ensure we can optimize our marketing across all platforms we use.

Lots of moving pieces in the quarter, but virtually all of the shortfall in adjusted EBITDA, at least relative to our model, can be attributed to this incremental investment in North American Interactive. And I find that surprising given we've recently had a lot of conversation around outsourcing components of that business and really restructuring it and making it leaner and meaner. And so I'm just wondering, could you help distinguish between where you're investing in NA Interactive and where you are scaling back? And then, again, I think someone asked this earlier, I don't think I heard you answer, but when are you targeting the segment to get back to EBITDA positive?

Yes. I would respond by saying that our investments have been quite deliberate in a few key areas. One area is our content for the Bally Live platform, which we believe is crucial. Additionally, we are working to eliminate some of the remnants from previous platforms within our system, which has involved some write-offs. Our current focus is on content and investment in our iGaming, especially understanding the variable component of our Kambi White Hat platform. Regarding profitability, it is difficult to predict if we will achieve that by the end of this year or even next year. However, we do expect to significantly reduce our losses by the second quarter of next year. Our main goal is to continue enhancing this platform and our infrastructure to strengthen our position in the iGaming market and fulfill our commitments to our strategic and media partnerships.

Yes, we're able to. But I think right now, our priority as it relates to moving forward is our development pipeline and committing to getting Chicago online. We'll balance those priorities appropriately, whether it's equity repurchases and/or debt retirement. But to answer your question in short, yes, we are.

I was wondering if we could start with some housekeeping items. Can you please remind us of the covenant for this quarter on an LTM basis, the regulatory leverage, and how it compares to the covenant? Also, can you confirm if you have utilized restricted payment capacity for the restricted cash allocated for the transaction in Chicago? Just confirm that you did not need to use a restricted payment capacity.

Regarding the regulatory covenant for Rhode Island, we are comfortably within the limit of 5.5 times, or around 5 times. Additionally, we have not utilized the restricted payment capacity for investments in Chicago. These were the two questions you raised.

Got it. For my follow-up, given that you mentioned you might go to the market for a loan to fund construction, can we assume that's something you would consider in the first half of next year? Or do you have other plans for the loan to support these additional properties?

Yes, conceptually, Chicago falls within the unrestricted group. We are exploring various financing options for the project. As Marcus mentioned earlier, the Tribune didn't vacate until July, so the actual costs will start to incur as we prepare, likely in the second quarter at the earliest, and then continue into the latter half of the year. Our plan is to finance that independently, and we have time to organize this. Clearly, laying out construction plans regarding the timing of expenditures is a matter for 2024.

The Twin Rivers expansion, I'm wondering if you could give us some early color on what you're seeing and if there's any kind of reaction in terms of radius that you're attracting or frequency or returning customers? Anything you could share on trends since that was finished.

David, this is George. The expansion was primarily aimed at adding key elements to retain and attract more slot and table games business from Oncor. It was focused on influencing that customer base. I'm pleased to report that the early results are exceeding our expectations. As you'll see in the reports, we have actually increased our slot business by just over 4% since the expansion, and the table games, which are our main focus, are up more than 7%. We are feeling optimistic about these outcomes and consider them an incremental gain compared to what we had initially forecasted.

Yes, I understand. Just to clarify, you might be referencing Cleveland instead of Detroit when we opened there. There are a couple of key differences to note. First, the Chicago market presents a much larger penetration opportunity for us. If I compare the success of the temporary casino to our expectations for the permanent one, we believe we can effectively size the permanent facility to use Chicago as a central hub for boosting tourism and attracting visitors nationally. Within a 50-mile radius, and more accurately within a 20-mile radius, there are several million people, approximately 2 to 3 million, that we can reach. We've discussed previously the advantage of our existing database in the Chicago area, which is part of the Bally's family, allowing us to connect with customers right away. We're optimistic about the prospects for both the temporary venue and as we transition into operating the permanent facility. We have taken a conservative stance in our performance expectations. We're also monitoring what George and the team have accomplished with properties that differ from the development model we'll be implementing in Chicago. I am confident that they will optimize the use of this facility and realize its full potential.

Okay. Great. And then lastly, in the presentation, it looks like you guys have changed the format for the International Interactive segment reporting. I just want to say the additional transparency in detail, I thought that was very helpful. I hope you guys will consider putting it in going forward.

At this time, we have no further questions in queue. I'll turn the call back to management for any additional or closing remarks.

Thank you all for listening, and we will be speaking to you with any major updates for you soon.

Thank you. This does conclude today's Bally's Corporation Second Quarter 2023 Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.