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The Stars Group Reports First Quarter 2018 Results

ECONOMIA E FINANZA

TORONTO, May 10, 2018 /PRNewswire/ --

The Stars Group Inc. (NASDAQ: TSG; TSX: TSGI) today reported its financial results for the first quarter ended March 31, 2018 and provided certain additional highlights and updates. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

"The Stars Group's strong first quarter results continued our organic growth trajectory," stated Rafi Ashkenazi, The Stars Group's Chief Executive Officer. "We are pleased with the performance of each of our verticals, poker, casino and sportsbook, which are benefiting not only from the continued success of Stars Rewards, but also from our strategy of focusing on the customer and continued improvements to our product offerings."

"Moving forward, the exceptional foundation of our existing business will be complemented by our acquisitions of CrownBet and William Hill Australia, and expected completion of the Sky Betting & Gaming acquisition. These acquisitions will help diversify our revenue base, increase our exposure to regulated markets, and transform our combined sportsbook into a second customer acquisition channel. These new additions will accelerate not only the organic growth we are seeing in our existing business, but also our progress towards realizing our vision of becoming the world's favorite iGaming destination."

First Quarter 2018 Financial Summary[ 1 ]

Three Months Ended Year-over-Year March 31, Change $000's, except percentages and per share amounts 2018 2017 Revenue 392,891 317,320 23.8% Net earnings 74,361 65,753 13.1% Diluted net earnings per common share $ 0.36 $ 0.33 9.1% Adjusted EBITDA 175,022 151,001 15.9% Adjusted Net Earnings 139,207 113,367 22.8% Adjusted Net Earnings per Diluted Share $ 0.66 $ 0.56 17.9% Net cash inflows from operating activities 132,069 95,547 38.2% Adjusted Cash Flow from Operations 132,258 111,776 18.3%

[1] For important information on The Stars Group's non-IFRS measures, see below under "Non-IFRS and Non-U.S. GAAP Measures" and the tables under "Reconciliation of Non IFRS Measures to Nearest IFRS Measures". The financial information presented in this news release was derived from the Q1 2018 Financial Statements (as defined below).

First Quarter 2018 and Subsequent Financial Highlights 

First Quarter 2018 and Subsequent Operational Highlights 

2018 Full Year Guidance 

These unaudited expected results reflect The Stars Group's existing business, excluding CrownBet, William Hill Australia and Sky Betting & Gaming. These expectations also reflect management's view of current and future market and business conditions, including assumptions of (i) potential negative operating conditions in Russia expected to begin in late-May 2018, (ii) no other material regulatory events, and (iii) no material foreign currency exchange rate fluctuations, particularly against the Euro. Such guidance is also based on a Euro to U.S. dollar exchange rate of 1.20 to 1.00, Diluted Shares of between 207,000,000 and 209,000,000 for the high and low ends of the Adjusted Net Earnings per Diluted Share range, respectively, and certain accounting assumptions.

Financial Statements, Management's Discussion and Analysis and Additional Information 

The Stars Group's unaudited interim condensed consolidated financial statements for the three months ended March 31, 2018 (the "Q1 2018 Financial Statements"), management's discussion and analysis thereon (the "Q1 2018 MD&A"), as well as additional information relating to The Stars Group and its business, can be found on SEDAR at http://www.sedar.com, Edgar at http://www.sec.gov and The Stars Group's website at http://www.starsgroup.com.

In addition to press releases, securities filings and public conference calls and webcasts, The Stars Group intends to use its investor relations page on its website as a means of disclosing material information to its investors and others and for complying with its disclosure obligations under applicable securities laws. Accordingly, investors and others should monitor the website in addition to following The Stars Group's press releases, securities filings and public conference calls and webcasts. This list may be updated from time to time.

Conference Call and Webcast 

The Stars Group will host a conference call today, May 10, 2018 at 8:30 a.m. ET to discuss its financial results for the first quarter ended 2018 and related matters. To access via tele-conference, please dial +1 877-451-6152 or +1 201-389-0879 ten minutes prior to the scheduled start of the call. The playback will be made available two hours after the event at +1 844-512-2921 or +1 412-317-6671. The Conference ID number is 13678731. To access the webcast please use the following link: http://public.viavid.com/index.php?id=129256

Reconciliation of Non-IFRS Measures to Nearest IFRS Measures 

The table below presents reconciliations of Adjusted EBITDA, Adjusted Net Earnings and Adjusted Net Earnings per Diluted Share to net earnings, which is the nearest IFRS measure:

Three Months Ended March 31, $000's, except per share amounts 2018 2017 Net earnings 74,361 65,753 Financial expenses 45,015 40,589 Income taxes expense 1,155 2,688 Depreciation of property and equipment 2,744 2,161 Amortization of intangible and deferred development costs 36,514 33,574 EBITDA 159,789 144,765 Stock-based compensation 2,383 2,164 Termination of employment agreements 672 2,126 Termination of affiliate agreements - 407 Loss on disposal of assets - 59 Gain from investments (1,023) (435) Acquisition-related costs 7,739 - Impairment of (reversal of impairment of) intangible assets and assets held for sale 115 (6,684) Other costs (see table below) 5, 347 8,599 Adjusted EBITDA 175,022 151,001 Current income tax expense (2,420) (3,322) Depreciation and amortization (excluding amortization of purchase price allocation intangibles) (7,096) (4,660) Interest * (26,299) (29,652) Adjusted Net Earnings 139,207 113,367 Diluted Shares 209,495,673 200,656,549 Adjusted Net Earnings per Diluted Share 0.66 0.56

* Excluding interest accretion and non-refundable late payment fees related to the unpaid balance of the deferred purchase price for the Stars Interactive Group Acquisition.

The table below presents certain items comprising "Other costs" in the reconciliation table above:

Three Months Ended March 31, 2018 2017 $000's $000's Non-U.S. lobbying and legal expenses 1,138 741 U.S. lobbying and legal expenses 1,855 3,978 Strategic review professional fees - 125 Retention bonuses 117 615 Non-recurring professional fees 451 662 AMF and other investigation professional fees (net of insurance proceeds) 1,784 2,390 Office restructuring and legacy business unit shutdown costs 2 88 Other costs 5,347 8,599

The table below presents a reconciliation of Adjusted Cash Flow from Operations to net cash inflows from operating activities, which is the nearest IFRS measure:

Three Months Ended March 31, 2018 2017 $000's $000's Net cash inflows from operating activities 132,069 95,547 Customer deposit liability movement 189 16,229 Adjusted Cash Flow from Operations 132,258 111,776

The table below presents a reconciliation of the numerator of QNY (i.e., real-money online poker revenue and real-money online casino and sportsbook combined revenue) to the nearest IFRS measure (i.e., revenue) as reported for the applicable period. Unless otherwise noted, any deviation in the reconciliation below to measures presented herein may be the result of immaterial adjustments made in later periods due to certain accounting reallocations.

Three Months Ended March 31, 2018 2017 $000's $000's Revenue 392,891 317,320 Corporate revenue (294) (22) Other gaming revenue (12,209) (11,854) Real-money online poker revenue and real-money online casino and sportsbook combined revenue (including CrownBet revenue) 380,388 305,444 CrownBet revenue 11,124 - Real-money online poker revenue and and real-money online casino and sportsbook combined revenue (excluding CrownBet revenue) 369,264 305,444

The Stars Group has not provided a reconciliation of the non-IFRS measures to the nearest IFRS measures included in its full year 2018 financial guidance provided in this news release, including Adjusted EBITDA, Adjusted Net Earnings and Adjusted Net Earnings per Diluted Share, because certain reconciling items necessary to accurately project such IFRS measures, particularly net earnings (loss), cannot be reasonably projected due to a number of factors, including variability from potential foreign exchange fluctuations impacting financial expenses, and the nature of other non-recurring or one-time costs (which are excluded from non-IFRS measures but included in net earnings (loss)), as well as the typical variability arising from the audit of annual financial statements, including, without limitation, certain income tax provision accounting, and related accounting matters.

For additional information on The Stars Group's non-IFRS measures, see below and the Q1 2018 MD&A, including under the headings "Management's Discussion and Analysis" and "Selected Financial Information-Other Financial Information".

About The Stars Group  The Stars Group is a leading provider of technology-based product offerings in the global gaming and interactive entertainment industries. The Stars Group directly or indirectly, including through its Stars Interactive Group division, owns gaming and related consumer businesses and brands, such as PokerStars, PokerStars Casino, BetStars, Full Tilt, and the PokerStars Players No Limit Hold'em Championship, European Poker Tour, PokerStars Caribbean Adventure, Latin American Poker Tour, Asia Pacific Poker Tour, PokerStars Festival and PokerStars MEGASTACK live poker tour and event brands. These brands together have millions of registered customers globally and collectively form the largest poker business in the world, comprising online poker games and tournaments, sponsored live poker competitions, marketing arrangements for branded poker rooms in popular casinos in major cities around the world, and poker programming and content created for television and online audiences. The Stars Group, through certain of these and other brands, also offers non-poker gaming product offerings, including casino and sportsbook. The Stars Group, through certain of its subsidiaries, is licensed or approved to offer, or offers under third party licenses or approvals, its product offerings in various jurisdictions throughout the world, including in Europe, both within and outside of the European Union, Australia, the Americas and elsewhere. In particular, as of the date hereof, The Stars Group holdings gaming licenses or related operating approvals in 18 jurisdictions, and PokerStars, the world's most licensed online gaming brand, holds gaming licenses or related operating approvals in 17 of those jurisdictions.

Cautionary Note Regarding Forward Looking Statements   This news release contains forward-looking statements and information within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable securities laws, including, without limitation, certain financial and operational expectations and projections, such as full year 2018 financial guidance, and certain future operational and growth plans and strategies, including as it relates to certain recently announced acquisitions. Forward-looking statements and information can, but may not always, be identified by the use of words such as "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "would", "should", "believe", "objective", "ongoing", "imply", "assumes", "goal", "likely" and similar references to future periods or the negatives of these words or variations or synonyms of these words or comparable terminology and similar expressions. These statements and information, other than statements of historical fact, are based on management's current expectations and are subject to a number of risks, uncertainties, and assumptions, including market and economic conditions, business prospects or opportunities, future plans and strategies, projections, technological developments, anticipated events and trends and regulatory changes that affect The Stars Group, its subsidiaries, and its and their respective customers and industries. Although The Stars Group and management believe the expectations reflected in such forward-looking statements and information are reasonable and are based on reasonable assumptions and estimates as of the date hereof, there can be no assurance that these assumptions or estimates are accurate or that any of these expectations will prove accurate. Forward-looking statements and information are inherently subject to significant business, regulatory, economic and competitive risks, uncertainties and contingencies that could cause actual events to differ materially from those expressed or implied in such statements. Specific risks and uncertainties include, but are not limited to: the heavily regulated industry in which The Stars Group carries on its business; interactive entertainment and online and mobile gaming generally; current and future laws or regulations and new interpretations of existing laws or regulations, or potential prohibitions, with respect to interactive entertainment or online gaming or activities related to or necessary for the operation and offering of online gaming; potential changes to the gaming regulatory framework; legal and regulatory requirements; ability to obtain, maintain and comply with all applicable and required licenses, permits and certifications to offer, operate and market its product offerings, including difficulties or delays in the same; impact of inability to complete future acquisitions or to integrate businesses successfully; significant barriers to entry; competition and the competitive environment within The Stars Group's addressable markets and industries; ability to obtain additional financing on reasonable terms or at all; refinancing risks; The Stars Group's substantial indebtedness requires that it use a significant portion of its cash flow to make debt service payments; The Stars Group's secured credit facilities contain covenants and other restrictions that may limit its flexibility in operating its business; risks associated with advancements in technology, including artificial intelligence; ability to develop and enhance existing product offerings and new commercially viable product offerings; ability to mitigate foreign exchange and currency risks; ability to mitigate tax risks and adverse tax consequences, including, without limitation, the imposition of new or additional taxes, such as value-added and point of consumption taxes, and gaming duties; risks of foreign operations generally; protection of proprietary technology and intellectual property rights; ability to recruit and retain management and other qualified personnel, including key technical, sales and marketing personnel; defects in The Stars Group's product offerings; losses due to fraudulent activities; management of growth; contract awards; potential financial opportunities in addressable markets and with respect to individual contracts; ability of technology infrastructure to meet applicable demand; systems, networks, telecommunications or service disruptions or failures or cyber-attacks; regulations and laws that may be adopted with respect to the Internet and electronic commerce or that may otherwise impact The Stars Group in the jurisdictions where it is currently doing business or intends to do business, particularly those related to online gaming or that could impact the ability to provide online product offerings, including, without limitation, as it relates to payment processing; customer and operator preferences and changes in the economy; dependency on customers' acceptance of its product offerings; consolidation within the gaming industry; litigation costs and outcomes; expansion within existing and into new markets; relationships with vendors and distributors; and natural events. Other applicable risks and uncertainties include, but are not limited to, those identified in The Stars Group's annual information form for the year ended December 31, 2017, including under the heading "Risk Factors and Uncertainties", and in the Q1 2018 MD&A, including under the headings "Risk Factors and Uncertainties", "Limitations of Key Metrics and Other Data" and "Key Metrics", each available on SEDAR at http://www.sedar.com, EDGAR at http://www.sec.gov and The Stars Group's website at http://www.starsgroup.com, and in other filings that The Stars Group has made and may make with applicable securities authorities in the future. Investors are cautioned not to put undue reliance on forward-looking statements or information. Any forward-looking statement or information speaks only as of the date hereof, and The Stars Group undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Non-IFRS and Non-U.S. GAAP Measures  

This news release references non-IFRS and non-U.S. GAAP financial measures, including QNY, Adjusted EBITDA, Adjusted Cash Flow from Operations, Adjusted Net Earnings, Adjusted Net Earnings per Diluted Share, and the foreign exchange impact on revenues (i.e., constant currency). The Stars Group believes these non-IFRS and non-U.S. GAAP financial measures will provide investors with useful supplemental information about the financial performance of its business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating its business. Although management believes these financial measures are important in evaluating The Stars Group, they are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS or U.S. GAAP. They are not recognized measures under IFRS or U.S. GAAP and do not have standardized meanings prescribed by IFRS or U.S. GAAP. These measures may be different from non-IFRS and non-U.S. GAAP financial measures used by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of certain of these measures is provided for year-over-year comparison purposes, and investors should be cautioned that the effect of the adjustments thereto provided herein have an actual effect on The Stars Group's operating results. In addition to QNY, which is defined below under "Key Metrics and Other Data", The Stars Group uses the following non-IFRS and non-U.S. GAAP measures in this news release:

Adjusted EBITDA means net earnings before financial expenses, income taxes expense (recovery), depreciation and amortization, stock-based compensation, restructuring and certain other items.

Adjusted Cash Flow from Operations means net cash inflows from operating activities after adding back customer deposit liability movements. 

Adjusted Net Earnings means net earnings before interest accretion, amortization of intangible assets resulting from purchase price allocation following acquisitions, deferred income taxes, stock-based compensation, restructuring, foreign exchange, and certain other items.

Adjusted Net Earnings per Diluted Share means Adjusted Net Earnings divided by Diluted Shares. Diluted Shares means the weighted average number of common shares on a fully diluted basis, including options, other equity-based awards, warrants and convertible preferred shares. The effects of anti-dilutive potential common shares are ignored in calculating Diluted Shares. See note 7 to the Q1 2018 Financial Statements. For the three months ended March 31, 2018 and 2017, Diluted Shares equaled 209,495,673 and 200,656,549, respectively. For the purposes of the full year 2018 financial guidance provided in this news release, Diluted Shares equals between 207,000,000 and 209,000,000 for the high and low ends of the Adjusted Net Earnings per Diluted Share range, respectively.

To calculate revenue on a constant currency basis, The Stars Group translated revenue for the three months ended March 31, 2018 using the prior year's monthly exchange rates for its local currencies other than the U.S. dollar, which The Stars Group believes is a useful metric that facilitates comparison to its historical performance.

For additional information on The Stars Group's non-IFRS measures, see the Q1 2018 MD&A, including under the headings "Management's Discussion and Analysis" and "Selected Financial Information-Other Financial Information".

Key Metrics and Other Data  

The Stars Group defines QAUs as active unique customers (online, mobile and desktop client) who (i) made a deposit or transferred funds into their real-money account with The Stars Group at any time, and (ii) generated real-money rake or placed a real-money bet or wager on or through one of its real-money online poker, casino or sportsbook offerings during the applicable quarterly period. The Stars Group defines unique as a customer who played at least once on one of its real-money offerings during the period, and excludes duplicate counting, even if that customer is active across multiple verticals (poker, casino and/or sportsbook). The definition of QAUs excludes customer activity from certain low-stakes, non-raked real-money poker games, but includes real-money activity by customers using funds (cash and cash equivalents) deposited by The Stars Group into such customers' previously funded accounts as promotions to increase their lifetime value.

The Stars Group defines QNY as combined real-money online gaming and related revenue (excluding certain other revenues, such as revenues that are included in "other gaming" revenues) for its two business lines (i.e., real-money online poker and real-money online casino and sportsbook) as reported during the applicable quarterly period (or as adjusted to the extent any accounting reallocations are made in later periods) divided by the total QAUs during the same period. The Stars Group provides QNY on a U.S. dollar and constant currency basis. QNY is a non-IFRS measure.

The Stars Group defines Net Deposits as the aggregate of gross deposits or transfer of funds made by customers into their real-money online accounts less withdrawals or transfer of funds by such customers from such accounts, in each case during the applicable quarterly period. Gross deposits exclude (i) any deposits, transfers or other payments made by such customers into The Stars Group's play-money and social gaming offerings, and (ii) any real-money funds (cash and cash equivalents) deposited by The Stars Group into such customers' previously funded accounts as promotions to increase their lifetime value. 

The Stars Group defines Customer Registrations as the cumulative number of online real-money and play-money customer registrations on The Stars Group's brands.

To ensure consistency in The Stars Group's key metrics for the three months ended March 31, 2018 presented in this news release, The Stars Group has excluded all QAUs, Net Deposits and Customer Registrations related to CrownBet and has excluded CrownBet revenues from QNY. The Stars Group will continue to review and analyze applicable data and information available to it and will consider including key metrics from CrownBet in its own key metrics, including QAUs, QNY, Net Deposits and Customer Registrations, once it has had sufficient time to evaluate, confirm and record the same.

For additional information on The Stars Group's key metrics and other data, see the Q1 2018 MD&A, including under the headings "Limitations of Key Metrics and Other Data" and "Key Metrics".

THE STARS GROUP INC.CONSOLIDATED STATEMENTS OF EARNINGS  

Three Months Ended March 31, 2018 2017 $000's $000's U.S. dollars (except per share amounts) (except per share amounts) Revenues 392,891 317,320 Expenses Selling 61,297 43,051 General and administrative 161,395 131,141 Financial 45,015 40,589 Gaming duty 42,952 34,533 Acquisition-related costs 7,739 - Total expenses 318,398 249,314 Gain from investments 1,023 435 Net earnings before income taxes 75,516 68,441 Income taxes 1,155 2,688 Net earnings 74,361 65,753 Net earnings (loss) attributable to Shareholders of The Stars Group Inc. 75,451 65,411 Non-controlling interest (1,090) 342 Net earnings 74,361 65,753 Basic earnings per Common Share $ 0.51 $ 0.45 Diluted earnings per Common Share $ 0.36 $ 0.33

THE STARS GROUP INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 

As at March 31, As at December 31, 2018 2017 U.S. dollars $000's $000's ASSETS Current assets Cash and cash equivalents - operational 256,647 283,225 Cash and cash equivalents - customer deposits 255,939 227,098 Total cash and cash equivalents 512,586 510,323 Restricted cash advances and collateral 5,962 7,862 Current investments - customer deposits 109,650 122,668 Accounts receivable 103,924 100,409 Inventories 245 302 Prepaid expenses and deposits 30,214 29,393 Income tax receivable 17,038 16,540 Derivatives 3,706 2,037 Total current assets 783,325 789,534 Non-current assets Restricted cash advances and collateral 50,215 45,834 Prepaid expenses and deposits 16,929 16,514 Long-term accounts receivable 13,243 11,818 Long-term investments 9,298 6,981 Property and equipment 52,647 44,837 Investment tax credits receivable 3,881 3,056 Income tax receivable 17,411 14,061 Deferred income taxes 5,278 5,141 Goodwill and intangible assets 4,611,579 4,477,350 Total non-current assets 4,780,481 4,625,592 Total assets 5,563,806 5,415,126 LIABILITIES Current liabilities Accounts payable and accrued liabilities 170,553 151,473 Other payables 52,688 42,714 Provisions 17,709 17,590 Customer deposits 364,587 349,766 Income tax payable 43,220 35,941 Current maturity of long-term debt 24,274 4,990 Derivatives 7,452 - Total current liabilities 680,483 602,474 Non-current liabilities Long-term accounts payable and accrued liabilities 2,646 - Long-term debt 2,316,023 2,353,579 Provisions 3,140 3,093 Derivatives 130,149 111,762 Income tax payable 20,518 24,277 Deferred income taxes 29,366 16,510 Total non-current liabilities 2,501,842 2,509,221 Total liabilities 3,182,325 3,111,695 EQUITY Share capital 1,895,788 1,884,219 Reserves (182,839) (142,340) Retained earnings 667,755 561,519 Equity attributable to the Shareholders of The Stars Group Inc. 2,380,704 2,303,398 Non-controlling interest 777 33 Total equity 2,381,481 2,303,431 Total liabilities and equity 5,563,806 5,415,126

THE STARS GROUP INC.CONSOLIDATED STATEMENTS OF CASH FLOWS 

Three Months Ended March 31, 2018 2017 $000's $000's U.S. dollars Operating activities Net earnings 74,361 65,753 Dormant accounts recognized as income (1,866) (886) Stock-based compensation 2,383 2,164 Interest accretion 12,485 8,978 Interest expense 25,130 33,683 Income tax expense recognized in net earnings 1,155 2,688 Depreciation of property and equiptment 2,744 2,161 Amortization of intangible assets 32,462 31,697 Amortization of deferred development costs 4,052 1,877 Unrealized gain on foreign exchange (4,425) (2,099) Unrealized gain on investments (1,033) (226) Impairment of (reversal of impairment of) intangible assets and assets held for sale 115 (6,684) Realized loss (gain) on current investments, promissory note and other 437 (2,122) Income taxes paid (1,370) (1,128) Changes in non-cash operating elements of working capital (13,308) (24,139) Customer deposit liability movement (189) (16,229) Other (1,064) 59 Net cash inflows from operating activities 132,069 95,547 Financing activities Issuance of common shares in relation to exercised employee stock options 9,737 1,710 Settlement of brokerage margin account - (7,602) Payment of deferred consideration - (75,000) Repayment of long-term debt (6,068) (6,888) Transaction costs on repricing of long-term debt - (4,719) Interest paid (31,488) (34,047) Gain on settlement of derivative - 13,904 Net cash outflows from financing activities (27,819) (112,642) Investing activities Acquisition of subsidiaries, net of cash acquired (101,703) - Additions in deferred development costs (6,431) (4,413) Purchase of property and equiptment (3,585) (856) Acquired intangible assets (2,427) (707) Sale of investments - 149 Cash movement from (into) restricted cash advances and collateral 1,126 (546) Settlement of minimum revenue guarantee (2,713) (1,707) Net sale of investments utilizing customer deposits 12,447 5,169 Other (551) (4) Net cash outflows from investing activities (103,837) (2,915) Increase (decrease) in cash and cash equivalents 413 (20,010) Cash and cash equivalents - beginning of period 510,323 267,684 Unrealized foreign exchange difference on cash and cash equivalents 1,850 (265) Cash and cash equivalents - end of period 512,586 247,409

For investor relations, please contact: Tim Foran, Tel: +1-437-371-5730, ir@starsgroup.com; For media inquiries, please contact: Eric Hollreiser, Press@starsgroup.com

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