TSG
$15.83
The Stars Group
($.15)
(.94%)
Earnings Details
1st Quarter March 2019
Wednesday, May 15, 2019 6:30:00 AM
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Summary

The Stars Group (TSG) Recent Earnings

The Stars Group (TSG) reported 1st Quarter March 2019 earnings of $0.37 per share on revenue of $580.4 million. The consensus earnings estimate was $0.43 per share on revenue of $651.3 million. Revenue grew 47.7% on a year-over-year basis.

Results
Reported Earnings
$0.37
Earnings Whisper
-
Consensus Estimate
$0.43
Reported Revenue
$580.4 Mil
Revenue Estimate
$651.3 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

The Stars Group Reports First Quarter 2019 Results

TORONTO, May 15, 2019 /CNW/ - The Stars Group Inc. (NASDAQ: TSG) (TSX: TSGI) today reported its financial results for the first quarter ended March 31, 2019 and provided certain additional highlights and updates. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

"During the quarter, we delivered on key components of our 2019 objectives," said Rafi Ashkenazi, The Stars Group's Chief Executive Officer. "As we continue to lay the foundations to deliver sustainable long-term growth across the group, we are also now focused on positioning our new FOX Bet brand as a market leader in the U.S."

"We continued to see growth in most markets in our International segment on a constant currency basis during the quarter, despite challenging operational conditions, the cessation of operations in certain markets and foreign exchange headwinds having a significant impact on our reported results as compared to the first quarter in 2018. Our United Kingdom segment continues to exceed our expectations operationally with record levels of new depositing customers, and an acceleration of growth in QAUs, Stakes and gaming revenue, although this performance was masked in the reported results by a record low Betting Net Win Margin of 5%. In Australia, we are pleased with our performance and continue to build our platform for market share gains," said Mr. Ashkenazi.

"Underlying trends were similar in April and into May across the three segments, but with a significantly higher Betting Net Win Margin in the United Kingdom segment that is above its historical average of 9%. As we look at the remainder of 2019, we see opportunities for improved revenue growth, with a deep pipeline of new products, content and offers, leveraging our talent and skills across segments. Our leading positions in attractive markets, strong brands, technology and operating expertise have been bolstered by the new partnership with FOX Sports and positions us well for long-term growth," concluded Mr. Ashkenazi.

First Quarter 2019 Summary

Consolidated




Three Months Ended March 31,

In thousands of U.S. Dollars

(except percentages and per share amounts)



2019



2018




% Change

Total revenue




580,384




392,891




47.7%

Gross profit (excluding depreciation and amortization)




417,748




312,627




33.6%

Operating income




61,537




113,867




(46.0%)

Net earnings




27,658




74,361




(62.8%)

Adjusted Net Earnings¹




105,600




138,762




(23.9%)

Adjusted EBITDA¹




195,355




175,022




11.6%

Adjusted EBITDA Margin¹




33.7%




44.5%




(24.4%)

Diluted earnings per Common Share ($/Share)




0.10




0.36




(71.6%)

Adjusted Diluted Net Earnings per Share ($/Share)¹




0.38




0.67




(42.8%)














Net cash inflows from operating activities




110,385




132,069




(16.4%)

Free Cash Flow¹




(37,513)




82,259




(145.6%)














As at



March 31, 2019



December 31, 2018




% Change

Long-term debt - principal




5,439,072




5,566,075




(2.3%)

Long-term debt - carrying value




5,323,705




5,446,958




(2.3%)

Cash - operational




266,513




392,853




(32.2%)

_____________________________

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".

 

  • Revenue – Revenue for the quarter increased primarily as a result of the contribution of revenue from Sky Betting & Gaming and BetEasy, as described below.  

  • U.S. Sports Betting – On May 8, 2019, The Stars Group and FOX Sports, a unit of Fox Corporation (Nasdaq: FOXA, FOX), announced plans to launch FOX Bet, the first-of-its-kind national media and sports wagering partnership in the United States. In addition to the commercial agreement of up to 25 years and associated product launches, exclusive trademark, advertising and editorial integration rights and licenses, Fox Corporation also acquired 14,352,331 newly issued common shares in The Stars Group, representing 4.99% of The Stars Group's issued and outstanding common shares, at a price of $16.4408 per share, for aggregate proceeds of approximately $236 million. Prior to the tenth anniversary of the commercial agreement, and subject to certain conditions and applicable gaming regulatory approvals, FOX Sports has the right to acquire up to a 50% equity stake in The Stars Group's U.S. business.

  • Debt and Cash – During the quarter, The Stars Group prepaid $100 million outstanding on its USD first lien term loan, ending the quarter with approximately $267 million in operational cash and $5.3 billion in of debt on its balance sheet, resulting in Net Debt of $5.1 billion. Following the end of the quarter, The Stars Group prepaid an additional $250 million outstanding on its first lien term loans using a combination of the proceeds from the issuance of common shares to Fox and cash on its balance sheet, which would have brought its Net Debt to below $4.9 billion.

International



Three Months Ended March 31,


In thousands of U.S. Dollars (except otherwise noted)


2019



2018



% Change


Stakes



275,259




222,985




23.4%


Betting Net Win Margin (%)



7.3%




7.5%




(2.7)%















Revenue













Poker



214,149




245,870




(12.9)%


   Poker Constant Currency Revenue



234,856




245,870




(4.5)%


Gaming



98,908




106,710




(7.3)%


   Gaming Constant Currency Revenue



108,112




106,710




1.3%


Betting



20,049




16,686




20.2%


   Betting Constant Currency Revenue



21,905




16,686




31.3%


Other



7,507




12,500




(39.9%)


   Other Constant Currency Revenue



8,173




12,500




(34.6%)


Total revenue



340,613




381,766




(10.8%)


      Constant Currency Revenue



373,046




381,766




(2.3%)















QAUs (millions)



2.2




2.2




(2.9%)


QNY ($/QAU)



154




165




(6.7%)


Constant Currency Revenue QNY



169




165




2.7%















Gross profit (excluding depreciation and amortization)



260,442




304,846




(14.6%)


Gross profit margin (%)



76.5%




79.9%




(4.2%)















General and administrative



98,975




105,220




(5.9%)


Sales and marketing2



40,282




44,969




(10.4%)


Research and development



6,602




7,819




(15.6%)


Operating income



114,583




146,838




(22.0%)















Adjusted EBITDA¹



159,340




186,407




(14.5%)


Adjusted EBITDA Margin (%)¹



46.8%




48.8%




(4.2%)















Net Deposits (millions)



317




353




(10.2%)


____________________________

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".

2 Sales and marketing includes $1.5 million for the quarter ended March 31, 2019 that the Corporation excluded from its consolidated results as it related to certain non-gaming related transactions with the United Kingdom segment.

 

  • Poker – Poker revenue decreased year-over-year, in-line with expectations, primarily driven by foreign exchange fluctuations. Constant Currency Revenue for Poker declined 5% year-over-year primarily as a result of continued headwinds in certain markets, including reduced deposits by customers as a result of local restrictions on some methods of payment processing and on certain methods of downloading The Stars Group's poker applications, which was partially offset by continued organic growth in most other markets. 

  • Gaming – Gaming revenue for the quarter decreased primarily as a result of foreign exchange fluctuations. Constant Currency Revenue for Gaming increased 1% year-over-year primarily driven by continued organic growth from product launches such as "Spin of the Day" and the continued rollout of new casino games. This more than offset the impact of the cessation of operations in certain markets in the first quarter, notably Switzerland (gaming and betting) and Slovakia (gaming, betting and poker) and operational challenges in certain markets, including local restrictions on some methods of payment processing.

  • Betting - Betting revenue increased 20% year-over-year, despite also facing foreign exchange headwinds (as Constant Currency Revenue for Betting increased 31% year-over-year) and the cessation of operations in certain markets as noted above. The growth was primarily the result of an increase in Stakes and customer engagement, driven by new markets and certain product launches, including "Request-A-Bet", leveraging the strength of the equivalent innovative Sky Bet product. Betting Net Win Margin was relatively flat year-over-year.

  • Customers – QAUs decreased primarily due to reduced activity in certain markets and the closure of certain markets, each as noted above.  

United Kingdom



Three Months Ended March 31,


In thousands of U.S. Dollars (except otherwise noted)


2019



2018



% Change


Stakes



1,504,972








Betting Net Win Margin (%)



5.0%





















Revenue













Poker



3,290








Gaming



90,303








Betting



74,497








Other2



11,007








Total revenue



179,097





















QAUs (millions)



2.1








QNY ($/QAU)



78





















Gross profit (excluding depreciation and amortization)



121,525








Gross profit margin (%)



67.9%





















General and administrative



108,587








Sales and marketing



34,594








Research and development



4,336








Operating loss



(25,992)





















Adjusted EBITDA¹



42,219








Adjusted EBITDA Margin (%)¹



23.6%








____________________________

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".

2

Other revenue includes $1.5 million for the quarter ended March 31, 2019, that the Corporation excluded from its consolidated results as it related to certain non-gaming related transactions with the International segment.

 

  • Revenue – Revenue for the quarter was negatively impacted by a record low Betting Net Win Margin due to a combination of operator-unfavorable sporting results and planned investment in promotional activity, primarily relating to the Cheltenham Festival, one of the U.K.'s most popular horse racing events. The promotional activity was particularly successful and contributed to the growth in QAUs and Stakes as noted below, accelerating the underlying performance of the segment during the quarter which, despite the short-term impact to Betting Net Win Margin and revenues, The Stars Group expects will support its expectations for the United Kingdom segment for the remainder of the year and into the medium-term.

  • Customers – Growth in QAUs and Stakes were very strong for the quarter primarily driven by Sky Bet as a result of the successful promotional activity noted above and continued product improvements. QAUs also benefited from the continued roll-out of personalized promotions and new and exclusive Gaming content across the Sky Betting & Gaming brands, including the launch of Sky Vegas Creations, which emphasizes exclusive gaming content. 

Australia



Three Months Ended March 31,


In thousands of U.S. Dollars (except otherwise noted)


2019



2018 1



% Change


Stakes



754,326




157,457




379%


Betting Net Win Margin (%)



8.1%




7.1%




15%















Revenue













Betting



61,120




11,125




449%


Other



1,054










Total revenue



62,174




11,125




458.9%















QAUs (millions)



0.21








QNY ($/QAU)



285





















Gross profit (excluding depreciation and amortization)



37,281




7,636




388.2%


Gross profit margin (%)



60.0%




68.6%




(12.6%)















General and administrative



26,082




4,337




501.4%


Sales and marketing



10,764




4,211




155.6%


Research and development



1,573




216




628.2%


Operating loss



(1,138)




(1,128)




0.9%















Adjusted EBITDA 2



8,630




(846)




(1120.1%)


Adjusted EBITDA Margin (%) 2



13.9%




(7.6%)




(282.5%)


_____________________________

1

The acquisition of 62% of BetEasy occurred on February 27, 2018 with the acquisition of a further 18% of BetEasy and BetEasy's acquisition of the William Hill Australia business occurring subsequent to the first quarter of 2018. 

2

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".

 

  • Revenue – Revenue for the quarter was marginally impacted by a lower Betting Net Win Margin as compared to the historical long-term average of approximately 8.5% primarily due to a combination of operator-unfavorable sports results as well as promotional spend as BetEasy maintained its position as one of the market leaders in Australia.

  • Customers – The successful migration of William Hill Australia customers to the rebranded BetEasy platform last year continued to drive growth in QAUs through further reactivation of customers with over 90% of the William Hill Australia customers subsequently becoming active on the BetEasy platform. The focus on improving the customer experience also continued, with the launch of MyRewards toward the end of the quarter, which allows for targeted, personalized promotions.

For additional information regarding The Stars Group's reporting segments and major lines of operations, please see The Stars Group's interim condensed consolidated financial statements for the quarter ended March 31, 2019 (the "Q1 2019 Financial Statements"), including note 5 therein, and management's discussion and analysis thereon (the "Q1 2019 MD&A").

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

The Stars Group's Q1 2019 Financial Statements, Q1 2019 MD&A, and 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 2018 Annual 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 Details

The Stars Group will host a conference call today, May 15, 2019 at 8:30 a.m. ET to discuss its financial results for the first quarter 2019 and related matters, and provide additional detail with respect to the information in this news release, its webcast presentation, and related Q1 2019 filings. 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 13690431. To access the webcast please use the following link: http://public.viavid.com/index.php?id=134412.

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 earnings, which is the nearest IFRS measure. For additional information, see "Reconciliations" in the Q1 2019 MD&A.





Quarter Ended March 31, 2019


In thousands of U.S. Dollars (except per share amounts)



International




United
Kingdom




Australia




Corporate




Consolidated


Net earnings (loss)



114,583




(25,992)




(1,138)




(59,795)




27,658























Income tax recovery












13,098




13,098


Net financing charges












(46,977)




(46,977)























Operating income (loss)



114,583




(25,992)




(1,138)




(25,916)




61,537























Depreciation and amortization



37,979




61,671




9,442




202




109,294


Add (deduct) the impact of the following:





















Stock-based compensation












2,736




2,736


Gains from investments



(67)













(67)


Impairment of intangible assets



12




142










154


Other costs



6,833




6,398




326




8,144




21,701


Total adjusting items



6,778




6,540




326




10,880




24,524























Adjusted EBITDA



159,340




42,219




8,630




(14,834)




195,355


























Quarter Ended March 31, 2018


In thousands of U.S. Dollars (except per share amounts)



International




United
Kingdom




Australia




Corporate




Consolidated


Net earnings (loss)



146,838







(1,128)




(71,349)




74,361























Income tax expense












(1,155)




(1,155)


Net financing charges












(38,351)




(38,351)























Operating income (loss)



146,838







(1,128)




(31,843)




113,867























Depreciation and amortization



37,969







1,280




9




39,258


Add (deduct) the impact of the following:





















Acquisition-related costs and deal contingent forwards













15,191




15,191


Stock-based compensation












2,383




2,383


Loss (gain) from investments



517







(5)







512


Impairment of intangible assets



115













115


Other costs (income)



968







(993)




3,721




3,696


Total adjusting items



1,600







(998)




21,295




21,897























Adjusted EBITDA



186,407







(846)




(10,539)




175,022


 



Three Months Ended March 31,


In thousands of U.S. Dollars (except per share amounts)


2019



2018


Net earnings



27,658




74,361


Income tax (recovery) expense



(13,098)




1,155


Net earnings before tax



14,560




75,516


Add (deduct) the impact of the following:









Interest accretion



8,269




12,051


Re-measurement of contingent consideration



(9,378)





Re-measurement of embedded derivative



(22,600)





Unrealized foreign exchange loss on financial instruments
associated with financing activities



1,632





Ineffectiveness on cash flow hedges



1,856





Acquisition-related costs and deal contingent forwards






15,191


Amortization of acquisition intangibles



89,955




31,376


Stock-based compensation



2,736




2,383


Loss from investments



(67)




512


Impairment of intangibles assets



154




115


Other costs



21,701




3,696


Adjust for income tax expense



(3,218)




(2,078)


Adjusted Net Earnings



105,600




138,762


Adjusted Net Earnings attributable to









Shareholders of The Stars Group Inc.



104,826




140,232


Non-controlling interest



774




(1,470)











Diluted Shares



273,946,225




209,495,673


Adjusted Diluted Net Earnings per Share



0.38




0.67











 

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



Quarter Ended March 31,




2019



2018


In thousands of U.S. Dollars









Integration costs of acquired businesses



8,023





Financial expenses (income)



1,030




(2,281)


Restructuring expenses



3,909




632


AMF and other investigation professional fees



2,709




1,784


Lobbying (US and Non-US) and other legal expenses



3,272




2,993


Professional fees in connection with non-core activities



1,820




451


Retention bonuses






117


Other



938





Other costs



21,701




3,696


 

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


Quarter Ended March 31,


In thousands of U.S. Dollars

2019



2018


Net cash inflows from operating activities


110,385




132,069


Customer deposit liability movement


(15,341)




189




95,044




132,258


Capital Expenditure:








Additions to deferred development costs


(20,146)




(6,431)


Additions to property and equipment


(4,047)




(3,585)


Additions to intangible assets


(4,534)




(2,427)


Interest paid


(91,761)




(31,488)


Debt servicing cash flows (excluding voluntary prepayments)


(12,069)




(6,068)


Free Cash Flow


(37,513)




82,259


 

The table below presents a reconciliation of Net Debt:





In thousands of U.S. Dollars

As at March 31, 2019


Current portion of long-term debt


131,750


Long-term debt


5,191,955


Less: Cash and cash equivalents - operational


266,513


Net Debt


5,057,192


 

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, FOX Bet, BetEasy, Sky Bet, Sky Vegas, Sky Casino, Sky Bingo, Sky Poker, and Oddschecker, as well as live poker tour and events 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 21 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 certain future operational and growth plans and strategies, and certain financial items relating to the full year 2019 results, as well as the partnership between The Stars Group and FOX Sports, a unit of FOX Corporation, and rights and obligations related thereto. 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: customer and operator preferences and changes in the economy; reputation and brand growth; competition and the competitive environment within addressable markets and industries; macroeconomic conditions and trends in the gaming and betting industry; ability to predict fluctuations in financial results from quarter to quarter; ability to mitigate tax risks and adverse tax consequences, including, without limitation, changes in tax laws or administrative policies relating to tax and the imposition of new or additional taxes, such as value-added and point of consumption taxes, and gaming duties; The Stars Group's substantial indebtedness requires that it use a significant portion of its cash flow to make debt service payments; impact of inability to complete future or announced acquisitions or to integrate businesses successfully, including, without limitation, Sky Betting & Gaming and BetEasy; contractual relationships of The Stars Group or any of its subsidiaries with FOX Corporation, FOX Sports and Sky plc and/or their respective subsidiaries; an ability to realize all or any of The Stars Group's estimated synergies and cost savings in connection with acquisitions, including, without limitation, the acquisition of Sky Betting & Gaming and the Australian acquisitions; ability to mitigate foreign exchange and currency risks; legal and regulatory requirements; potential changes to the gaming regulatory framework; the heavily regulated industry in which The Stars Group carries on its business; 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; social responsibility concerns and public opinion; protection of proprietary technology and intellectual property rights; intellectual property infringement or invalidity claims; and systems, networks, telecommunications or service disruptions or failures or cyber-attacks and failure to protect customer data, including personal and financial information.  These factors are not intended to represent a complete list of the factors that could affect The Stars Group; however, these factors as well as other applicable risks and uncertainties include, but are not limited to, those identified in its most recently filed annual information form, including under the heading "Risk Factors and Uncertainties", and in its most recently filed management's discussion and analysis, including under the headings "Caution Regarding Forward-Looking Statements", "Risk Factors and Uncertainties" and "Non-IFRS Measures, Key Metrics and Other Data", 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 in the future with applicable securities authorities in the future, should be considered carefully. Investors are cautioned not to put undue reliance on forward-looking statements or information. Any forward-looking statement or information in this news release are expressly qualified by this cautionary statement. 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. The Stars Group believes these non-IFRS financial measures will provide investors with useful supplemental information about the financial and operational 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, identifying and evaluating trends, and making decisions. The Stars Group believes that such non-IFRS financial measures provide useful information about its underlying, core operating results and trends, enhance the overall understanding of its past performance and future prospects and allow for greater transparency with respect to metrics and measures used by management in its financial and operational decision-making.

Although management believes these non-IFRS 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 any may not be comparable to similar meanings prescribed by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of certain of these measures is provided for period-over-period 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 tax 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 "above" below.

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, stock-based compensation, restructuring, net earnings (loss) on associate, and certain other items. In addition, as previously disclosed, The Stars Group makes adjustments for (i) the re-measurement of contingent consideration, which was previously included in, and adjusted for through, interest accretion, but starting with The Stars Group's interim condensed consolidated financial statements and related notes for the three and nine months ended September 30, 2018 (the "Q3 2018 Financial Statements"), it is a separate line item, (ii) the re-measurement of embedded derivatives and ineffectiveness on cash flow hedges, each of which were new line items in the Q3 2018 Financial Statements, and (iii) certain non-recurring tax adjustments and settlements. Each adjustment to net earnings is then adjusted for the tax impact, where applicable, in the respective jurisdiction to which the adjustment relates. Adjusted Net Earnings and any other non-IFRS measures used by The Stars Group that relies on or otherwise incorporates Adjusted Net Earnings that was reported for previous periods have not been restated under the updated definition on the basis that The Stars Group believes that the impact of the change to those periods would not be material.

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 such as warrants and any convertible preferred shares of The Stars Group then outstanding. 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. For the quarter ended March 31, 2019, Diluted Shares used for the calculation of Adjusted Diluted Net Earnings per Share equalled 273,946,225, compared with 209,495,673 for the same period in 2018.

Constant Currency Revenue means IFRS reported revenue for the relevant period calculated using the applicable prior year period's monthly average exchange rates for its local currencies other than the U.S. dollar. Currently, The Stars Group provides Constant Currency Revenue for the International segment and its applicable lines of operations. It does not currently provide Constant Currency Revenue for the United Kingdom and Australia segments because The Stars Group does not yet have reported comparative periods for these segments as a result of the respective acquisition dates.

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).

Net Debt means total long-term debt less operational cash.

For additional information on certain of The Stars Group's non-IFRS measures and the reasons why it believes such measures are useful, see above and the Q1 2019 MD&A, including under the headings "Management's Discussion and Analysis", "Non-IFRS Measures, Key Metrics and Other Data", "Segment Results of Operations" and "Reconciliations".

Key Metrics and Other Data

The Stars Group provides the following key metrics in this news release:

QAUs for the International and Australia reporting segments means 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 "active unique customer" 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) within the applicable reporting segment. 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.

QAUs for the United Kingdom reporting segment (which currently includes the Sky Betting & Gaming business operations only) means active unique customers (online and mobile) who have settled a Stake or made a wager on any betting or gaming product within the applicable quarterly period. The Stars Group defines active unique customer for the United Kingdom reporting segment 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 more than one line of operation.

QNY means combined revenue for its lines of operation (i.e., Poker, Gaming and/or Betting, as applicable) for each reporting segment, excluding Other revenue, 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.

Net Deposits for the International segment 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 means Betting revenue as a proportion of Stakes.

The Stars Group is also continuing the process of integrating its recent acquisitions, as applicable, and implementing its recently changed operating and reporting segments, and once complete, The Stars Group may revise or remove currently presented key metrics or report certain additional or other measures in the future.

For additional information on The Stars Group's key metrics and other data, see the Q1 2019 MD&A, including under the headings "Non-IFRS Measures, Key Metrics and Other Data" and "Segment Results of Operations".


UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS





Three Months Ended March 31,


In thousands of U.S. Dollars (except per share amounts)




2019



2018


Revenue





580,384




392,891


Cost of revenue (excluding depreciation and amortization)





(162,636)




(80,264)


Gross profit (excluding depreciation and amortization)





417,748




312,627


General and administrative





(259,357)




(141,307)


Sales and marketing





(84,343)




(49,418)


Research and development





(12,511)




(8,035)


Operating income





61,537




113,867


Gain on re-measurement of deferred contingent payment





9,378





Gain on re-measurement of Embedded Derivatives





22,600





Unrealized foreign exchange loss on financial instruments

associated with financing activities





(1,632)





Other net financing charges





(77,323)




(38,351)


Net financing charges





(46,977)




(38,351)


Earnings before income taxes





14,560




75,516


Income tax recovery (expense)





13,098




(1,155)


Net earnings





27,658




74,361


Net earnings (loss) attributable to











Shareholders of The Stars Group Inc.





27,913




75,451


Non-controlling interest





(255)




(1,090)


Net earnings





27,658




74,361


Earnings per Common Share (U.S. dollars)











Basic




$

0.10



$

0.51


Diluted




$

0.10



$

0.36


Weighted average Common Shares outstanding (thousands)











Basic





273,368




148,233


Diluted





273,946




209,496


 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION





As at March 31,



As at December 31,


In thousands of U.S. Dollars




2019



2018


ASSETS











Current assets











     Cash and cash equivalents - operational





266,513




392,853


     Cash and cash equivalents - customer deposits





333,205




328,223


Total cash and cash equivalents





599,718




721,076


Restricted cash advances and collateral





11,479




10,819


Prepaid expenses and other current assets





49,254




43,945


Current investments - customer deposits





106,507




103,153


Accounts receivable





118,142




136,347


Income tax receivable





24,753




26,085


Total current assets





909,853




1,041,425


Non-current assets











Restricted cash advances and collateral





10,517




10,630


Prepaid expenses and other non-current assets





31,787




32,760


Non-current accounts receivable





18,727




14,906


Property and equipment





147,571




85,169


Income tax receivable





23,178




15,611


Deferred income taxes





2,253




1,775


Derivatives





96,122




54,583


Intangible assets





4,734,896




4,742,699


Goodwill





5,320,324




5,265,980


Total non-current assets





10,385,375




10,224,113


Total assets





11,295,228




11,265,538


LIABILITIES











Current liabilities











Accounts payable and other liabilities





335,066




424,007


Customer deposits





436,694




423,739


Current provisions





28,870




39,189


Derivatives





17,726




16,493


Income tax payable





66,802




72,796


Current portion of lease liability





18,996





Current portion of long-term debt





131,750




35,750


Total current liabilities





1,035,904




1,011,974


Non-current liabilities











Lease liability





48,405





Long-term debt





5,191,955




5,411,208


Long-term provisions





3,550




4,002


Derivatives





81,468




6,068


Other long-term liabilities





72,799




79,716


Income tax payable





27,388




18,473


Deferred income taxes





576,629




580,697


Total non-current liabilities





6,002,194




6,100,164


Total liabilities





7,038,098




7,112,138


EQUITY











Share capital





4,116,717




4,116,287


Reserves





(394,225)




(469,629)


Retained earnings





530,674




502,761


Equity attributable to the Shareholders of The Stars Group Inc.





4,253,166




4,149,419


Non-controlling interest





3,964




3,981


Total equity





4,257,130




4,153,400


Total liabilities and equity





11,295,228




11,265,538


 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



Three Months Ended March 31,


In thousands of U.S. Dollars


2019



2018


Operating activities









Net earnings



27,658




74,361


Add (deduct):









Income tax (recovery) expense recognized in net earnings



(13,098)




1,155


Net financing charges



45,345




37,615


Depreciation and amortization



109,294




39,258


Stock-based compensation



2,736




2,383


Unrealized gain on foreign exchange



(7,837)




(4,425)


Unrealized gain on investments



(243)




(1,033)


Impairment of intangible assets



154




115


Realized loss on current investments and promissory note



27




437


Income taxes paid



(7,818)




(1,370)


Changes in non-cash operating elements of working capital



(62,163)




(13,308)


Customer deposit liability movement



15,341




(189)


Other



989




(2,930)


Net cash inflows from operating activities



110,385




132,069


Investing activities









Acquisition of subsidiaries, net of cash acquired






(101,703)


Additions to intangible assets



(4,534)




(2,427)


Additions to property and equipment



(4,047)




(3,585)


Additions to deferred development costs



(20,146)




(6,431)


Net (purchase) sale of investments utilizing customer deposits



(3,354)




12,447


Settlement of minimum revenue guarantee



(675)




(2,713)


Other






575


Net cash outflows from investing activities



(32,756)




(103,837)


Financing activities









Issuance of Common Shares in relation to stock options



379




9,737


Repayment of long-term debt



(108,938)




(6,068)


Repayment of lease liability principal



(3,131)





Interest paid



(91,761)




(31,488)


Proceeds on loan issued to the holders of non-controlling interest



1,421





Net cash outflows from financing activities



(202,030)




(27,819)


Decrease (increase) in cash and cash equivalents



(124,401)




413


Unrealized foreign exchange difference on cash and cash equivalents



3,043




1,850


Cash and cash equivalents – beginning of period



721,076




510,323


Cash and cash equivalents  end of period



599,718




512,586


 

Cision View original content:http://www.prnewswire.com/news-releases/the-stars-group-reports-first-quarter-2019-results-300850629.html

SOURCE The Stars Group Inc.