TORONTO, Aug. 13, 2018 /PRNewswire/ -- The Stars Group Inc. (NASDAQ: TSG) (TSX: TSGI) today reported its financial results for the second quarter ended June 30, 2018, updated its full year 2018 financial guidance, and provided certain additional highlights and updates. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.
"The Stars Group's quarterly results reflect both continued organic growth within our International business and the contributions of our Australian acquisitions," stated Rafi Ashkenazi, The Stars Group's Chief Executive Officer. "We continued enhancing our products and user experience across all verticals and executing on our cross-selling strategy."
"The continued emergence of our sports betting and casino offerings and the addition of our 2018 acquisitions have transformed our business and greatly enhanced the foundation and diversity of our consolidated revenue base, which will now be nearly equally split among verticals and roughly 75% locally regulated or taxed," said Mr. Ashkenazi.
"We are now focused on the next stage of our transformation—integration," concluded Mr. Ashkenazi. "While this will be a phased and measured process, we expect that it will prepare us to not only be a leader within the world's largest regulated markets but to also leverage the strength of our combined platform to take advantage of new opportunities and markets."
Second Quarter 2018 Consolidated Financial Summary
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
|
In thousands of U.S. Dollars (except percentages and per shareamounts) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
||||||
|
Total Revenue |
411,512 |
305,305 |
34.8% |
804,403 |
622,625 |
29.2% |
||||||
|
Gross Profit |
327,875 |
252,637 |
29.8% |
640,502 |
507,496 |
26.2% |
||||||
|
Operating Income |
1,064 |
105,517 |
(99.0%) |
114,930 |
216,403 |
(46.9%) |
||||||
|
Net (Loss) Earnings |
(154,824) |
70,483 |
(319.7%) |
(80,463) |
136,236 |
(159.1%) |
||||||
|
Adjusted Net Earnings ¹ |
131,023 |
114,028 |
14.9% |
269,785 |
227,396 |
18.6% |
||||||
|
Adjusted EBITDA ¹ |
168,270 |
146,539 |
14.8% |
343,292 |
297,540 |
15.4% |
||||||
|
Adjusted EBITDA Margin ¹ |
40.9% |
48.0% |
(14.8%) |
42.7% |
47.8% |
(10.7%) |
||||||
|
Diluted (loss) earnings perCommon Share ($/Share) |
(1.01) |
0.35 |
(388.6%) |
(0.52) |
0.67 |
(177.2%) |
||||||
|
Adjusted Diluted Net Earnings perShare ($/Share) ¹ |
0.60 |
0.56 |
7.1% |
1.27 |
1.13 |
12.7% |
||||||
|
Net cash flows from operating activities |
164,011 |
130,426 |
25.8% |
296,080 |
225,973 |
31.0% |
||||||
|
Free Cash Flow ¹ |
84,856 |
94,857 |
(10.5%) |
167,115 |
159,722 |
4.6% |
||||||
|
____________________________________1 Non-IFRS measure. For important information on The Stars Group's non-IFRS measures, see below under "Non-IFRS Measures" and the tables under "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures". |
||||||||||||
Second Quarter 2018 Segmented Financial SummaryInternational
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||
|
In thousands of U.S. Dollars(except otherwise noted) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
||||||||
|
Stakes |
248,572 |
144,352 |
72.2% |
471,557 |
287,448 |
64.0% |
||||||||
|
Betting Net Win Margin (%) |
7.9% |
6.1% |
29.0% |
7.7% |
5.5% |
39.7% |
||||||||
|
Revenue |
||||||||||||||
|
Poker |
216,986 |
202,897 |
6.9% |
462,861 |
421,559 |
9.8% |
||||||||
|
Gaming |
101,941 |
80,726 |
26.3% |
208,651 |
160,488 |
30.0% |
||||||||
|
Betting |
19,635 |
8,836 |
122.2% |
36,321 |
15,853 |
129.1% |
||||||||
|
Other |
11,673 |
12,846 |
(9.1%) |
24,169 |
24,725 |
(2.2%) |
||||||||
|
Total Revenue |
350,235 |
305,305 |
14.7% |
732,002 |
622,625 |
17.6% |
||||||||
|
Gross Profit |
281,076 |
252,637 |
11.3% |
586,131 |
507,496 |
15.5% |
||||||||
|
Gross Profit Margin (%) |
80.3% |
82.7% |
(3.0%) |
80.1% |
81.5% |
(1.8%) |
||||||||
|
General and administrative |
105,257 |
104,208 |
1.0% |
208,581 |
190,338 |
9.6% |
||||||||
|
Sales and marketing |
42,255 |
31,302 |
35.0% |
87,226 |
65,290 |
33.6% |
||||||||
|
Research and development |
8,358 |
5,383 |
55.3% |
16,176 |
12,483 |
29.6% |
||||||||
|
Operating Income |
125,206 |
111,744 |
12.0% |
274,148 |
239,385 |
14.5% |
||||||||
|
Adjusted EBITDA ¹ |
164,317 |
145,828 |
12.7% |
350,796 |
307,386 |
14.1% |
||||||||
|
Adjusted EBITDA Margin (%) ¹ |
46.9% |
47.8% |
(1.8%) |
47.9% |
49.4% |
(2.9%) |
||||||||
Australia
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||
|
In thousands of U.S. Dollars (except otherwise noted) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
|||||||
|
Stakes |
710,269 |
— |
100.0% |
867,726 |
— |
100.0% |
|||||||
|
Betting Net Win Margin (%) |
8.6% |
— |
100.0% |
8.3% |
— |
100.0% |
|||||||
|
Revenue |
|||||||||||||
|
Betting |
61,277 |
— |
100.0% |
72,401 |
— |
100.0% |
|||||||
|
Total Revenue |
61,277 |
— |
100.0% |
72,401 |
— |
100.0% |
|||||||
|
Gross Profit |
46,799 |
— |
100.0% |
54,371 |
— |
100.0% |
|||||||
|
Gross Profit Margin (%) |
76.4% |
— |
100.0% |
75.1% |
— |
100.0% |
|||||||
|
General and administrative |
40,288 |
— |
100.0% |
44,562 |
— |
100.0% |
|||||||
|
Sales and marketing |
12,262 |
— |
100.0% |
16,472 |
— |
100.0% |
|||||||
|
Research and development |
768 |
— |
100.0% |
984 |
— |
100.0% |
|||||||
|
Operating Loss |
(6,519) |
— |
(100.0%) |
(7,647) |
— |
(100.0%) |
|||||||
|
Adjusted EBITDA ¹ |
13,471 |
— |
100.0% |
12,625 |
— |
100.0% |
|||||||
|
Adjusted EBITDA Margin (%) ¹ |
22.0% |
— |
100.0% |
17.4% |
— |
100.0% |
|||||||
|
1 Non-IFRS measure. For important information on The Stars Group's non-IFRS measures, see below under "Non-IFRS Measures" and the tables under "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures". |
|||||||||||||
As a result of its previously announced Australian acquisitions and in anticipation of the future integration of Sky Betting & Gaming and potential future geographic expansion, The Stars Group revised the composition of its reporting segments and the manner in it reports its operating results as set forth above. The Stars Group believes that the new presentation will better reflect its current and expected management and operational structure. The Stars Group previously had one reporting segment, gaming, with two major lines of operations, real-money online poker and combined real-money online casino and sportsbook. Given the timing of the recent acquisitions, this is now divided into two reporting segments, International and Australia, and four major lines of operations, Poker, Gaming, Betting and Other, as applicable. The International segment currently includes the business operations of The Stars Group's existing business prior to the Australian acquisitions and Sky Betting & Gaming acquisition, and the Australia segment currently includes the business operations of CrownBet and William Hill Australia.
Second Quarter 2018 and Subsequent Financial Highlights
Second Quarter 2018 and Subsequent Operational Highlights
2018 Full Year Guidance
These unaudited expected results reflect management's view of current and future market and business conditions, including assumptions of (i) expected Betting Net Win Margin of between 8.0% and 10.5%, (ii) continued negative operating conditions in Poland and potential negative operating conditions in Russia resulting from prior regulatory changes, including constraints on payment processing, (iii) no other material regulatory events or investments associated with the entry into new markets, (iv) no impact from the gaming advertising ban in Italy, and (v) no material foreign currency exchange rate fluctuations, particularly against the Euro, Great Britain pound sterling and Australian dollar. Such guidance is also based on a Euro to U.S. dollar exchange rate of 1.17 to 1.00 as compared to 1.20 to 1.00, a Great Britain pound sterling to U.S. dollar exchange rate of 1.32 to 1.00 and an Australian dollar to U.S. dollar exchange rate of 0.74 to 1.00, Diluted Shares of between 241,000,000 and 243,000,000 for the high and low ends of the Adjusted Diluted Net Earnings per Share range, respectively, as compared to between 207,000,000 and 209,000,000, respectively, and certain accounting assumptions.
Capital Expenditures include estimated spend on intangible assets, property, plant and equipment and certain development costs.
Financial Statements, Management's Discussion and Analysis and Additional Information
The Stars Group's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2018 (the "Q2 2018 Financial Statements"), management's discussion and analysis thereon (the "Q2 2018 MD&A"), as well as additional information relating to The Stars Group and its business, can be found on SEDAR at www.sedar.com, Edgar at www.sec.gov and The Stars Group's website at www.starsgroup.com. The financial information presented in this news releases was derived from the Q2 2018 Financial Statements.
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, August 13, 2018 at 8:30 a.m. ET to discuss its financial results for the second 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 13682288. To access the webcast please use the following link: http://public.viavid.com/index.php?id=130894
Reconciliation of Non-IFRS Measures to Nearest IFRS Measures
The tables below present reconciliations of Adjusted EBITDA, Adjusted Net Earnings and Adjusted Diluted Net Earnings per Share to net (loss) earnings, which is the nearest IFRS measure:
|
Three Months Ended June 30, 2018 |
|||||||||
|
In thousands of U.S. Dollars (except per share amounts) |
International |
Australia |
Corporate |
Consolidated |
|||||
|
Net earnings (loss) |
126,274 |
(6,519) |
(274,579) |
(154,824) |
|||||
|
Income tax recovery |
— |
— |
3,404 |
3,404 |
|||||
|
Net financing charges |
— |
— |
(160,360) |
(160,360) |
|||||
|
Net earnings from associates |
1,068 |
— |
— |
1,068 |
|||||
|
Operating income (loss) |
125,206 |
(6,519) |
(117,623) |
1,064 |
|||||
|
Depreciation and amortization |
35,987 |
8,588 |
10 |
44,585 |
|||||
|
Add (deduct) the impact of the following: |
|||||||||
|
Acquisition-related costs and dealcontingent forwards |
— |
— |
95,627 |
95,627 |
|||||
|
Stock based compensation |
— |
— |
3,265 |
3,265 |
|||||
|
(Gain) loss from investments andassociates |
(270) |
5 |
— |
(265) |
|||||
|
Impairment of intangibles assets andassets held for sale |
958 |
— |
— |
958 |
|||||
|
Other costs |
2,436 |
11,397 |
9,203 |
23,036 |
|||||
|
Total adjusting items |
3,124 |
11,402 |
108,095 |
122,621 |
|||||
|
Adjusted EBITDA |
164,317 |
13,471 |
(9,518) |
168,270 |
|||||
|
Six Months Ended June 30, 2018 |
|||||||||
|
In thousands of U.S. Dollars (except per share amounts) |
International |
Australia |
Corporate |
Consolidated |
|||||
|
Net earnings (loss) |
275,216 |
(7,647) |
(348,032) |
(80,463) |
|||||
|
Income tax recovery |
— |
— |
2,249 |
2,249 |
|||||
|
Net financing charges |
— |
— |
(198,710) |
(198,710) |
|||||
|
Net earnings from associates |
1,068 |
— |
— |
1,068 |
|||||
|
Operating income (loss) |
274,148 |
(7,647) |
(151,571) |
114,930 |
|||||
|
Depreciation and amortization |
73,956 |
9,868 |
19 |
83,843 |
|||||
|
Add (deduct) the impact of the following: |
|||||||||
|
Acquisition-related costs and deal contingent forwards |
— |
— |
110,818 |
110,818 |
|||||
|
Stock based compensation |
— |
— |
5,649 |
5,649 |
|||||
|
Loss from investments and associates |
247 |
— |
— |
247 |
|||||
|
Impairment of intangibles assets and assets held for sale |
1,074 |
— |
— |
1,074 |
|||||
|
Other costs |
1,371 |
10,404 |
14,956 |
26,731 |
|||||
|
Total adjusting items |
2,692 |
10,404 |
131,423 |
144,519 |
|||||
|
Adjusted EBITDA |
350,796 |
12,625 |
(20,129) |
343,292 |
|||||
|
Three Months Ended June 30, 2017 |
|||||||||
|
In thousands of U.S. Dollars (except per share amounts) |
International |
Australia |
Corporate |
Consolidated |
|||||
|
Net earnings (loss) |
111,744 |
— |
(41,261) |
70,483 |
|||||
|
Income tax recovery |
— |
— |
4,018 |
4,018 |
|||||
|
Net financing charges |
— |
— |
(39,052) |
(39,052) |
|||||
|
Operating income (loss) |
111,744 |
— |
(6,227) |
105,517 |
|||||
|
Depreciation and amortization |
36,530 |
— |
70 |
36,600 |
|||||
|
Add (deduct) the impact of the following: |
|||||||||
|
Stock based compensation |
— |
— |
2,452 |
2,452 |
|||||
|
(Gain) loss from investments |
(8,452) |
— |
12,944 |
4,492 |
|||||
|
Reversal of impairment of intangibles assetsand assets held for sale |
(629) |
— |
— |
(629) |
|||||
|
Other costs (income) |
6,635 |
— |
(8,528) |
(1,893) |
|||||
|
Total adjusting items |
(2,446) |
— |
6,868 |
4,422 |
|||||
|
Adjusted EBITDA |
145,828 |
— |
711 |
146,539 |
|||||
|
Six Months Ended June 30, 2017 |
|||||||||
|
In thousands of U.S. Dollars(except per share amounts) |
International |
Australia |
Corporate |
Consolidated |
|||||
|
Net earnings (loss) |
239,385 |
— |
(103,149) |
136,236 |
|||||
|
Income tax recovery |
— |
— |
1,330 |
1,330 |
|||||
|
Net financing charges |
— |
— |
(81,497) |
(81,497) |
|||||
|
Operating income (loss) |
239,385 |
— |
(22,982) |
216,403 |
|||||
|
Depreciation and amortization |
72,188 |
— |
147 |
72,335 |
|||||
|
Add (deduct) the impact of the following: |
|||||||||
|
Stock based compensation |
— |
— |
4,616 |
4,616 |
|||||
|
(Gain) loss from investments |
(8,572) |
— |
13,217 |
4,645 |
|||||
|
Reversal of impairment of intangibles assetsand assets held for sale |
(5,043) |
— |
(2,268) |
(7,311) |
|||||
|
Other costs (income) |
9,428 |
— |
(2,576) |
6,852 |
|||||
|
Total adjusting items |
(4,187) |
— |
12,989 |
8,802 |
|||||
|
Adjusted EBITDA |
307,386 |
— |
(9,846) |
297,540 |
|||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||
|
In thousands of U.S. Dollars (except per share amounts) |
2018 |
2017 |
2018 |
2017 |
|||||
|
Net (loss) earnings |
(154,824) |
70,483 |
(80,463) |
136,236 |
|||||
|
Add (deduct) the impact of the following: |
|||||||||
|
Interest accretion |
12,726 |
12,147 |
24,777 |
24,940 |
|||||
|
Loss on debt extinguishment |
124,976 |
— |
124,976 |
— |
|||||
|
Acquisition-related costs and deal contingent forwards |
95,627 |
— |
110,818 |
— |
|||||
|
Amortization of acquisition intangibles |
31,482 |
31,075 |
62,858 |
62,150 |
|||||
|
Deferred income tax recovery |
(4,890) |
(4,098) |
(5,814) |
(4,732) |
|||||
|
Stock based compensation |
3,265 |
2,452 |
5,649 |
4,616 |
|||||
|
(Gain) loss from investments and associates |
(1,333) |
4,491 |
(821) |
4,645 |
|||||
|
Impairment (reversal of impairment) of intangibles assetsand assets held for sale |
958 |
(629) |
1,074 |
(7,311) |
|||||
|
Other costs (income) |
23,036 |
(1,893) |
26,731 |
6,852 |
|||||
|
Adjusted net earnings |
131,023 |
114,028 |
269,785 |
227,396 |
|||||
|
Adjusted net earnings attributable to |
|||||||||
|
Shareholders of The Stars Group Inc. |
129,237 |
114,028 |
269,469 |
227,396 |
|||||
|
Non-controlling interest |
1,786 |
— |
316 |
— |
|||||
|
— |
— |
— |
— |
||||||
|
Weighted average diluted number of shares |
215,380,175 |
203,467,303 |
212,449,078 |
201,969,186 |
|||||
|
Adjusted Diluted Net Earnings per Share attributableto Shareholders of The Stars Group Inc |
0.60 |
0.56 |
1.27 |
1.13 |
|||||
The table below presents certain items comprising "Other costs" in the reconciliation tables above:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||
|
2018 |
2017 |
2018 |
2017 |
|||||
|
In thousands of U.S. Dollars |
$000's |
$000's |
$000's |
$000's |
||||
|
Integration costs |
11,467 |
— |
11,467 |
— |
||||
|
Financial expenses (income) |
4,370 |
(6,622) |
2,049 |
(9,066) |
||||
|
Termination of employment agreements |
1,387 |
682 |
2,058 |
2,808 |
||||
|
AMF and other investigation professional fees |
2,875 |
2,764 |
4,659 |
5,153 |
||||
|
Lobbying (US and Non-US) and otherlegal expenses |
2,665 |
4,598 |
5,658 |
9,318 |
||||
|
Non-recurring professional fees |
102 |
842 |
553 |
1,504 |
||||
|
Retention bonuses |
117 |
615 |
234 |
1,230 |
||||
|
Loss on disposal of assets |
41 |
202 |
41 |
261 |
||||
|
Austria gaming duty |
— |
(5,000) |
— |
(5,000) |
||||
|
Termination of affiliate agreements |
— |
— |
— |
407 |
||||
|
Other |
12 |
26 |
12 |
237 |
||||
|
Other costs |
23,036 |
(1,893) |
26,731 |
6,852 |
||||
The table below presents a reconciliation of Free Cash Flow to net cash flows from operating activities, which is the nearest IFRS measure:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||
|
In thousands of U.S. Dollars |
2018 |
2017 |
2018 |
2017 |
|||||
|
Net cash inflows from operating activities |
164,011 |
130,426 |
296,080 |
225,973 |
|||||
|
Customer deposit liability movement |
(14,090) |
9,053 |
(13,901) |
25,282 |
|||||
|
149,921 |
139,479 |
282,179 |
251,255 |
||||||
|
Capital Expenditure: |
|||||||||
|
Additions to deferred development costs |
(9,759) |
(6,013) |
(16,190) |
(10,426) |
|||||
|
Additions to property and equipment |
(5,676) |
(1,398) |
(9,261) |
(2,254) |
|||||
|
Additions to intangible assets |
(9,415) |
(212) |
(11,842) |
(919) |
|||||
|
Interest paid |
(34,790) |
(31,017) |
(66,278) |
(65,064) |
|||||
|
Debt principal repayments |
(5,425) |
(5,982) |
(11,493) |
(12,870) |
|||||
|
Free Cash Flow |
84,856 |
94,857 |
167,115 |
159,722 |
|||||
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 Diluted Net Earnings per 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 Q2 2018 MD&A, including under the headings "Management's Discussion and Analysis", "Limitations of Key Metrics, Other Data and Non-IFRS Measures" and "Key Metrics and Non-IFRS Measures".
About The Stars Group
The Stars Group is a provider of technology-based product offerings in the global gaming and interactive entertainment industries. Its brands have millions of registered customers globally and collectively are leaders in online and mobile betting, poker, casino and other gaming-related offerings. The Stars Group owns or licenses gaming and related consumer businesses and brands, including PokerStars, PokerStars Casino, BetStars, Full Tilt, BetEast, Sky Bet, Sky Vegas, Sky Casino, Sky Bingo, and Sky Poker, as well as live poker tour and event brands, including 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. The Stars Group is one of the world's most licensed online gaming operators with its subsidiaries collectively holding licenses or approvals in 19 jurisdictions throughout the world, including in Europe, Australia, and the Americas. The Stars Group's vision is to become the world's favorite iGaming destination and its mission is to provide its customers with winning moments.
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 "seek", "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 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; risks associated with 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; significant barriers to entry; competition and the competitive environment within addressable markets and industries; impact of inability to complete future or announced acquisitions or to integrate businesses successfully; 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; The Stars Group's exposure to greater than anticipated tax liability; 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 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 and reliance on online and mobile telecommunications operators; systems, networks, telecommunications or service disruptions or failures or cyber-attacks and failure to protect customer data, including personal and financial information; 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; ability to obtain additional financing or to complete any refinancing on reasonable terms or at all; 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; contractual relationships of Sky Betting & Gaming or The Stars Group with Sky plc and/or its subsidiaries; counterparty risks; failure of systems and controls of The Stars Group to restrict access to its products; reliance on scheduling and live broadcasting of major sporting events; macroeconomic conditions and trends in the gaming and betting industry; bookmaking risks; an ability to realize projected financial increases attributable to acquisitions and The Stars Group's business strategies; and an ability to realize all or any of The Stars Group's estimated synergies and cost savings in connection with acquisitions. 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", in The Stars Group's prospectus supplement dated June 21, 2018 to the short form base shelf prospectus dated January 16, 2018 under the heading "Risk Factors", and in the Q2 2018 MD&A, including under the headings "Risk Factors and Uncertainties", "Limitations of Key Metrics, Other Data and Non-IFRS Measures" and "Key Metrics and Non-IFRS Measures", each available on SEDAR at www.sedar.com, EDGAR at www.sec.gov and The Stars Group's website at 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 Measures
This news release references non-IFRS financial measures, including QNY, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Earnings, Adjusted Diluted Net Earnings per Share, and Free Cash Flow. The Stars Group believes these non-IFRS 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. They are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS. These measures may be different from non-IFRS 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 provides the following non-IFRS measures in this news release:
Adjusted EBITDA means net earnings before financial expenses, income taxes expense (recovery), depreciation and amortization, stock-based compensation, restructuring, net earnings (loss) on associate and certain other items as set out in the reconciliation tables under "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures" above.
Adjusted EBITDA Margin means Adjusted EBITDA as a proportion of total revenue.
Adjusted Net Earnings means net earnings before interest accretion, amortization of intangible assets resulting from purchase price allocations following acquisitions, deferred income taxes, stock-based compensation, restructuring and certain other items as set out in the reconciliation tables under "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures" above.
Adjusted Diluted Net Earnings per Share means Adjusted Net Earnings attributable to the Shareholders of The Stars Group Inc. 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 the Preferred Shares. The effects of anti-dilutive potential Common Shares are ignored in calculating Diluted Shares. Diluted Shares used in the calculation of diluted earnings per share may differ from diluted shares used in the calculation of Adjusted Diluted Net Earnings per Share where the dilutive effects of the potential Common Shares differ. See note 7 in the Q2 2018 Financial Statements. For the three and six months ended June 30, 2018, Diluted Shares used for the calculation of Adjusted Diluted Net Earnings per Share equaled 215,380,175 and 212,449,178, respectively, compared with 203,467,303 and 201,969,186 for the same periods in 2017. For the purposes of the full year 2018 financial guidance provided in this news release, Diluted Shares equals between 241,000,000 and 243,000,000 for the high and low ends of the Adjusted Net Earnings per Diluted Share range, respectively.
Free Cash Flow means net cash flows from operating activities after adding back customer deposit liability movements, and after capital expenditures and debt servicing cash flows (excluding voluntary prepayments). The Stars Group believes that removing movements in customer deposit liabilities provides a more meaningful understanding of its free cash flows as customer deposits are not available funds for The Stars Group to use for financial or operational purposes.
To calculate revenue on a constant currency basis, The Stars Group translated revenue for the three and six months ended June 30, 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 Q2 2018 MD&A, including under the headings "Management's Discussion and Analysis", "Limitations of Key Metrics, Other Data and Non-IFRS Measures" and "Key Metrics and Non-IFRS Measures".
Key Metrics and Other Data
The Stars Group provides the following key metrics in this news release:
QAUs means 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 online rake or placed a real-money online bet or wager on during the applicable quarterly period. The Stars Group defines unique as a customer who played or used one of its real-money offerings at least once during the period, and excludes duplicate counting, even if that customer is active across multiple lines of operation (Poker, Gaming and/or Betting, as applicable). 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.
QNY means combined revenue for its lines of operation (i.e., Poker, Gaming and/or Betting), excluding Other revenues, 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.
Net Deposits means 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.
Stakes means betting amounts wagered on The Stars Group's applicable online betting product offerings, and is also an industry term that represents the aggregate amount of funds wagered by customers within the Betting line of operation for the period specified.
Betting Net Win Margin is calculated as Betting revenue as a proportion of Stakes.
The Stars Group is in the process of the integration and migration of customers and platforms with respect to the Australian acquisitions and once complete, The Stars Group intends to report certain key metrics for the Australia segment in addition to Stakes and Betting Net Margin.
For additional information on The Stars Group's key metrics and other data, see the Q2 2018 MD&A, including under the headings "Limitations of Key Metrics, Other Data and Non-IFRS Measures", "Key Metrics and Non-IFRS Measures" and "Segment Results of Operations".
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||||
|
In thousands of U.S. Dollars(except per share amounts) |
2018 |
2017 |
2018 |
2017 |
||||||||||||||
|
Revenues |
411,512 |
305,305 |
804,403 |
622,625 |
||||||||||||||
|
Cost of revenue |
(83,637) |
(52,668) |
(163,901) |
(115,129) |
||||||||||||||
|
Gross profit |
327,875 |
252,637 |
640,502 |
507,496 |
||||||||||||||
|
General and administrative |
(262,786) |
(110,395) |
(404,093) |
(213,250) |
||||||||||||||
|
Sales and marketing |
(54,899) |
(31,342) |
(104,319) |
(65,360) |
||||||||||||||
|
Research and development |
(9,126) |
(5,383) |
(17,160) |
(12,483) |
||||||||||||||
|
Operating income |
1,064 |
105,517 |
114,930 |
216,403 |
||||||||||||||
|
Net financing charges |
(160,360) |
(39,052) |
(198,710) |
(81,497) |
||||||||||||||
|
Net earnings from associates |
1,068 |
— |
1,068 |
— |
||||||||||||||
|
(Loss) earnings before income taxes |
(158,228) |
66,465 |
(82,712) |
134,906 |
||||||||||||||
|
Income tax recovery |
3,404 |
4,018 |
2,249 |
1,330 |
||||||||||||||
|
Net (loss) earnings |
(154,824) |
70,483 |
(80,463) |
136,236 |
||||||||||||||
|
Net (loss) earnings attributable to |
||||||||||||||||||
|
Shareholders of The Stars Group Inc. |
(153,645) |
70,494 |
(78,194) |
135,905 |
||||||||||||||
|
Non-controlling interest |
(1,179) |
(11) |
(2,269) |
331 |
||||||||||||||
|
Net (loss) earnings |
(154,824) |
70,483 |
(80,463) |
136,236 |
||||||||||||||
|
(Loss) earnings per Common Share(U.S. dollars) |
||||||||||||||||||
|
Basic |
$ |
(1.01) |
$ |
0.48 |
$ |
(0.52) |
$ |
0.93 |
||||||||||
|
Diluted |
$ |
(1.01) |
$ |
0.35 |
$ |
(0.52) |
$ |
0.67 |
||||||||||
|
Weighted Average Common SharesOutstanding (thousands) |
||||||||||||||||||
|
Basic |
152,788 |
146,703 |
150,523 |
146,136 |
||||||||||||||
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
As at June 30, |
As at December 31, |
|||||||||
|
In thousands of U.S. Dollars |
2018 |
2017 |
||||||||
|
ASSETS |
||||||||||
|
Current assets |
||||||||||
|
Cash and cash equivalents - operational |
1,052,146 |
283,225 |
||||||||
|
Cash and cash equivalents - customer deposits |
274,862 |
227,098 |
||||||||
|
Total cash and cash equivalents |
1,327,008 |
510,323 |
||||||||
|
Restricted cash advances and collateral |
12,077 |
7,862 |
||||||||
|
Prepaid expenses and other current assets |
32,058 |
29,695 |
||||||||
|
Current investments - customer deposits |
106,074 |
122,668 |
||||||||
|
Accounts receivable |
96,071 |
100,409 |
||||||||
|
Income tax receivable |
16,161 |
16,540 |
||||||||
|
Derivatives |
- |
2,037 |
||||||||
|
Total current assets |
1,589,449 |
789,534 |
||||||||
|
Non-current assets |
||||||||||
|
Restricted cash advances and collateral |
45,739 |
45,834 |
||||||||
|
Prepaid expenses and other non-current assets |
29,892 |
26,551 |
||||||||
|
Non-current accounts receivable |
12,472 |
11,818 |
||||||||
|
Property and equipment |
54,405 |
44,837 |
||||||||
|
Income tax receivable |
19,013 |
14,061 |
||||||||
|
Deferred income taxes |
6,110 |
5,141 |
||||||||
|
Goodwill and intangible assets |
4,950,655 |
4,477,350 |
||||||||
|
Total non-current assets |
5,118,286 |
4,625,592 |
||||||||
|
Total assets |
6,707,735 |
5,415,126 |
||||||||
|
LIABILITIES |
||||||||||
|
Current liabilities |
||||||||||
|
Accounts payable and other liabilities |
265,439 |
194,187 |
||||||||
|
Customer deposits |
380,936 |
349,766 |
||||||||
|
Current provisions |
22,227 |
17,590 |
||||||||
|
Derivatives |
60,347 |
— |
||||||||
|
Income tax payable |
71,881 |
35,941 |
||||||||
|
Due to related party |
926 |
— |
||||||||
|
Current portion of long-term debt |
21,700 |
4,990 |
||||||||
|
Total current liabilities |
823,456 |
602,474 |
||||||||
|
Non-current liabilities |
||||||||||
|
Long-term debt |
2,705,179 |
2,353,579 |
||||||||
|
Long-term provisions |
3,145 |
3,093 |
||||||||
|
Derivatives |
61,868 |
111,762 |
||||||||
|
Other long-term liabilities |
88,777 |
— |
||||||||
|
Due to related party |
35,124 |
— |
||||||||
|
Income tax payable |
6,676 |
24,277 |
||||||||
|
Deferred income taxes |
105,098 |
16,510 |
||||||||
|
Total non-current liabilities |
3,005,867 |
2,509,221 |
||||||||
|
Total liabilities |
3,829,323 |
3,111,695 |
||||||||
|
EQUITY |
||||||||||
|
Share capital |
2,644,866 |
1,884,219 |
||||||||
|
Reserves |
(336,980) |
(142,340) |
||||||||
|
Retained earnings |
527,019 |
561,519 |
||||||||
|
Equity attributable to theShareholders of The Stars Group Inc. |
2,834,905 |
2,303,398 |
||||||||
|
Non-controlling interest |
43,507 |
33 |
||||||||
|
Total equity |
2,878,412 |
2,303,431 |
||||||||
|
Total liabilities and equity |
6,707,735 |
5,415,126 |
||||||||
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Six Months Ended June 30, |
|||||||
|
In thousands of U.S. Dollars |
2018 |
2017 |
|||||
|
Operating activities |
|||||||
|
Net (loss) earnings |
(80,463) |
136,236 |
|||||
|
Add (deduct): |
|||||||
|
Income taxes recognized in net earnings |
(2,249) |
(1,330) |
|||||
|
Net financing charges |
198,710 |
81,638 |
|||||
|
Depreciation and amortization |
83,843 |
72,335 |
|||||
|
Unrealized loss (gain) on foreign exchange |
68,996 |
(6,512) |
|||||
|
Unrealized gain on investments |
(164) |
(779) |
|||||
|
Impairment (reversal of impairment) ofintangible assets and assets held for sale |
1,074 |
(7,312) |
|||||
|
Net earnings from associates |
(1,068) |
— |
|||||
|
Realized loss (gain) on current investmentsand promissory note |
28 |
(7,127) |
|||||
|
Income taxes paid |
(15,772) |
(7,025) |
|||||
|
Changes in non-cash operating elementsof working capital |
18,525 |
(11,357) |
|||||
|
Customer deposit liability movement |
13,901 |
(25,282) |
|||||
|
Other |
10,719 |
2,488 |
|||||
|
Net cash inflows from operating activities |
296,080 |
225,973 |
|||||
|
Investing activities |
|||||||
|
Acquisition of subsidiaries, net of cash acquired |
(310,563) |
(6,513) |
|||||
|
Additions to intangible assets |
(11,842) |
(919) |
|||||
|
Additions to property and equipment |
(9,261) |
(2,254) |
|||||
|
Additions to deferred development costs |
(16,190) |
(10,426) |
|||||
|
Net sale of investments utilizing customer deposits |
16,044 |
6,682 |
|||||
|
Settlement of promissory note |
— |
8,084 |
|||||
|
Net investment in associates |
1,068 |
— |
|||||
|
Other |
(3,850) |
(3,584) |
|||||
|
Net cash outflows from investing activities |
(334,594) |
(8,930) |
|||||
|
Financing activities |
|||||||
|
Issuance of common shares |
646,000 |
— |
|||||
|
Transaction costs on issuance of common shares |
(24,225) |
— |
|||||
|
Issuance of common shares in relation with exercised employee stock options |
27,627 |
7,222 |
|||||
|
Issuance of debt |
425,041 |
— |
|||||
|
Repayment of debt |
(106,493) |
(12,870) |
|||||
|
Transaction costs on long-term debt |
(23,061) |
(4,719) |
|||||
|
Loan from related party |
30,918 |
— |
|||||
|
Interest paid |
(66,278) |
(65,064) |
|||||
|
Payment of deferred consideration |
— |
(197,510) |
|||||
|
Gain on settlement of derivatives |
— |
13,904 |
|||||
|
Acquisition of further interest in subsidiaries |
(48,240) |
— |
|||||
|
Other |
- |
(7,602) |
|||||
|
Net cash inflows (outflows) from financing activities |
861,289 |
(266,639) |
|||||
|
Increase (decrease) in cash and cash equivalents |
822,775 |
(49,596) |
|||||
|
Unrealized foreign exchange difference on cash and cash equivalents |
(6,090) |
9,346 |
|||||
|
Cash and cash equivalents – beginning of period |
510,323 |
267,684 |
|||||
|
Cash and cash equivalents - end of period |
1,327,008 |
227,434 |
|||||
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
