The Stars Group Reports Third Quarter 2018 Results

The Stars Group Reports Third Quarter 2018 Results

PR Newswire

TORONTO, Nov. 7, 2018

TORONTO, Nov. 7, 2018 /PRNewswire/ -- The Stars Group Inc. (NASDAQ: TSG) (TSX: TSGI) today reported its financial results for the third quarter ended September 30, 2018 and provided certain additional highlights and updates. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

"This was a landmark quarter during a transformative year for the company as we begin to deliver on our vision to become the world's favorite iGaming destination," stated Rafi Ashkenazi, The Stars Group's Chief Executive Officer. "We completed our acquisition of Sky Betting & Gaming, which was cleared by the CMA in October, making us the leader in the UK online betting and gaming market. We also launched BetEasy in Australia and sports betting in New Jersey."

"We are pleased with our quarterly results, which reflect both continued organic growth from our International business and contributions from both BetEasy and Sky Betting & Gaming, despite unfavorable sporting results during the period," said Mr. Ashkenazi.

"As we continue our transformation and look towards 2019, we are excited to take advantage of the opportunities ahead of us by leveraging our leading positions in attractive markets, strong brands, technology and operating expertise," concluded Mr. Ashkenazi.

Third Quarter 2018 Summary

Consolidated



Three Months Ended September 30,


Nine Months Ended September 30,

In thousands of U.S. Dollars

(except percentages and per share amounts)


2018


2017


%
Change


2018


2017


%
Change

Total Revenue


571,983


329,443


73.6%


1,376,386


952,065


44.6%

Gross Profit


442,757


266,966


65.8%


1,083,259


774,460


39.9%

Operating Income


70,901


118,724


(40.3%)


185,832


335,128


(44.5%)

Net Earnings (loss)


9,730


75,874


(87.2%)


(70,733)


212,110


(133.3%)

Adjusted Net Earnings ¹


119,500


119,595


(0.1%)


389,285


346,990


12.2%

Adjusted EBITDA ¹


198,252


155,767


27.3%


541,545


453,305


19.5%

Adjusted EBITDA Margin ¹


34.7%


47.3%


(26.7%)


39.3%


47.6%


(17.4%)

Diluted (loss) earnings per Common Share ($/Share)


0.06


0.37


(84.9%)


(0.34)


1.05


(132.3%)

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


0.45


0.58


(23.8%)


1.67


1.71


(2.2%)














Net cash flows from operating activities


73,227


144,870


(49.5%)


369,307


370,843


(0.4%)

Free Cash Flow ¹


(26,723)


95,306


(128.0%)


140,392


255,028


(45.0%)

_____________________________

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".

 

International



Three Months Ended  September 30,


Nine Months Ended September 30,

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


2018


2017


% Change


2018


2017


% Change

Stakes


233,694


163,844


42.6%


705,251


451,699


56.1%

Betting Net Win Margin (%)


9.0%


7.1%


26.1%


8.1%


6.1%


33.4%














Revenue













Poker         


212,832


221,393


(3.9%)


675,688


642,946


5.1%

Gaming


107,602


83,474


28.9%


316,253


243,959


29.6%

Betting


21,030


11,688


79.9%


57,351


27,541


108.2%

Other 2


10,982


12,888


(14.8%)


35,155


37,619


(6.5%)

Total Revenue


352,446


329,443


7.0%


1,084,447


952,065


13.9%














Gross Profit


287,522


266,966


7.7%


873,444


774,460


12.8%

Gross Profit Margin (%)


81.6%


81.0%


0.7%


80.5%


81.3%


(1.0%)














General and administrative


111,295


95,250


16.8%


319,668


276,798


15.5%

Sales and marketing


31,912


32,624


(2.2%)


119,136


97,914


21.7%

Research and development


6,808


6,030


12.9%


22,985


18,513


24.2%

Operating Income


137,507


133,062


3.3%


411,655


381,235


8.0%














Adjusted EBITDA ¹


182,228


162,880


11.9%


533,025


478,264


11.4%

Adjusted EBITDA Margin (%) ¹


51.7%


49.4%


4.6%


49.2%


50.2%


(2.2%)

_____________________________

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 Other revenue includes $1.0 million that the Corporation excluded from its consolidated results as it related to certain non-gaming related transactions with the United Kingdom segment.

 

United Kingdom



Three Months Ended September 30,


Nine Months Ended September 30,

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


2018


2017


% Change


2018


2017


% Change

Stakes


1,221,854




1,221,854



Betting Net Win Margin (%)


7.0%




7.0%
















Revenue













Poker


2,884




2,884



Gaming


73,318




73,318



Betting


85,189




85,189



Other


6,989




6,989



Total Revenue


168,380




168,380
















Gross Profit


121,226




121,226



Gross Profit Margin (%)


72.0%




72.0%














General and administrative


104,697




104,697



Sales and marketing 2


40,224




40,224



Research and development


4,940




4,940



Operating Loss


(28,635)




(28,635)
















Adjusted EBITDA ¹


27,943




27,943



Adjusted EBITDA Margin (%) ¹


16.6%




16.6%



____________________________

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 Sales and marketing expense includes $1.0 million that the Corporation excluded from its consolidated results as it related to certain non-gaming related transactions with the United Kingdom segment.

 

Australia



Three Months Ended September 30,


Nine Months Ended September 30,

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


2018


2017


% Change


2018


2017


% Change

Stakes


825,438




1,693,164



Betting Net Win Margin (%)


6.3%




7.4%
















Revenue













Betting


52,157




124,559



Total Revenue


52,157




124,559
















Gross Profit


35,154




89,589



Gross Profit Margin (%)


67.4%




71.9%
















General and administrative


39,963




84,588



Sales and marketing


21,050




37,523



Research and development


114




1,098



Operating Loss


(25,973)




(33,620)
















Adjusted EBITDA ¹


(4,764)




7,861



Adjusted EBITDA Margin (%) ¹


(9.1%)




6.3%



_____________________________

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".

 

For additional information regarding The Stars Group's reporting segments and major lines of operations, please see The Stars Group's unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2018 (the "Q3 2018 Financial Statements"), including note 6 therein, and management's discussion and analysis thereon (the "Q3 2018 MD&A").

Historic Supplemental Information and 2019 Update

Due to its recent acquisitions of SBG and BetEasy and to provide additional clarity with respect to the historical performance of The Stars Group's business on a proforma basis for the three and nine months ended September 30, 2018 and 2017, and presented based on The Stars Group's current reporting segments and lines of operations, see the information below under the heading "Supplementary Information". Certain of this information contains non-IFRS measures. 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".

In addition, to provide further clarity with respect to the potential impact of such acquisitions on its full year 2019 results, The Stars Group is also providing information for certain financial items:

These unaudited expected financial items are based on certain accounting assumptions and reflect management's view of current and future market and business conditions, including assumptions of (i) no material impairment or write-down of the assets to which this depreciation and amortization relates, (ii) no material change in the prevailing EURIBOR or LIBOR rates as at September 30, 2018 and no material adverse impact on applicable hedging counterparties, (iii) no material change in the mix of taxable income by jurisdiction, in the rate of corporate tax or tax regimes in the jurisdictions in which The Stars Group currently operates and no material change in the geographies where The Stars Group currently offers its products, (iv) no material increases or decreases in The Stars Group's issued and outstanding shares, (v) no other material regulatory events, and (vi) no material foreign currency exchange rate fluctuations, particularly against the Euro, Great Britain pound sterling and Australian dollar.

Supplementary information



Proforma Three Months Ended September 30, 2018

In millions of U.S. Dollars


International


United Kingdom


Australia2


Corporate3


Consolidated

Stakes


233.7


1,404.7


825.4



2,463.8

Betting Net Win Margin


9.0%


7.3%


6.3%



7.1%












Revenue











Poker


212.8


3.2




216.0

Gaming


107.6


83.9




191.5

Betting


21.0


102.3


52.2



175.5

Other


11.0


8.4



(1.0)


18.4

Total


352.4


197.8


52.2


(1.0)


601.4












Operating Income (loss)


137.5


(67.9)


(26.0)


(12.0)


31.6












Adjusted EBITDA1


182.2


37.5


(4.8)


(7.2)


207.7

Adjusted EBITDA Margin1


51.7%


19.0%


(9.1%)



34.5%












QAUs (millions)


2.0


2.0


0.3



4.3

 


Proforma Three Months Ended September 30, 2017

In millions of U.S. Dollars


International


United Kingdom


Australia2


Corporate


Consolidated

Stakes


163.8


1,207.6


437.1



1,808.5

Betting Net Win Margin


7.1%


9.0%


9.1%



8.8%












Revenue











Poker


221.4


3.6




225.0

Gaming


83.5


72.8




156.3

Betting


11.7


108.4


39.7



159.8

Other


12.8


6.6




19.4

Total


329.4


191.4


39.7



560.5












Operating Income (loss)


133.1


(24.7)


(10.0)


(14.3)


84.1












Adjusted EBITDA1


162.9


54.7


(2.9)


(7.1)


207.6

Adjusted EBITDA Margin1


49.4%


28.6%


(7.3%)



37.0%












QAUs (millions)


2.1


1.6


0.1



3.8

 



Proforma Nine Months Ended September 30, 2018

In millions of U.S. Dollars


International


United Kingdom


Australia2


Corporate3


Consolidated

Stakes


705.3


4,194.9


1,982.2




6,882.4

Betting Net Win Margin


8.1%


8.9%


7.6%



8.4%












Revenue











Poker


675.7


10.5




686.2

Gaming


316.2


244.2




560.4

Betting


57.3


372.0


150.4



579.7

Other


35.2


27.2



(1.0)


61.4

Total


1,084.4


653.9


150.4


(1.0)


1,887.7












Operating Income (loss)


411.7


(177.8)


(35.4)


(163.5)


35.0












Adjusted EBITDA1


533.0


161.4


13.5


(27.3)


680.6

Adjusted EBITDA Margin1


49.2%


24.7%


9.0%



36.1%

 



Proforma Nine Months Ended September 30, 2017

In millions of U.S. Dollars


International


United Kingdom


Australia2


Corporate


Consolidated

Stakes


451.7


3,728.6


1,194.5



5,374.8

Betting Net Win Margin


6.1%


8.5%


9.2%



8.4%












Revenue











Poker


643.0


10.6




653.6

Gaming


244.0


206.4




450.4

Betting


27.5


315.8


109.5



452.8

Other


37.6


18.6




56.2

Total


952.1


551.4


109.5



1,613.0












Operating Income (loss)


381.2


(80.0)


(16.2)


(46.1)


238.9












Adjusted EBITDA1


478.3


161.0


3.5


(25.0)


617.8

Adjusted EBITDA Margin1


50.2%


29.2%


3.2%



38.3%

 

FX Rates


Mar. 31,


Jun. 30,


Sept. 30,



Mar. 31,


Jun. 30,



Sept. 30,

Average for the three months ended


2017


2017


2017



2018


2018



2018

GBP to USD


1.2393


1.2786


1.3087



1.3917


1.3616



1.3035

AUD to USD


0.7579


0.7508


0.7890



0.7861


0.7572



0.7393

_____________________________


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 The Australia segment supplementary information includes the results of operations of William Hill Australia beginning with its acquisition on April 24, 2018. In August 2018, The Stars Group substantially completed its migration of customers and platforms and integration of William Hill Australia into BetEasy.

3 Other revenue includes $1.0 million that the Corporation excluded from its consolidated results as it related to certain non-gaming related transactions with the United Kingdom segment.

 

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

The Stars Group's Q3 2018 Financial Statements, Q3 2018 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 Q3 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 Details

The Stars Group will host a conference call today, November 7, 2018 at 8:30 a.m. ET to discuss its financial results for the third quarter ended 2018 and related matters, and provide additional detail with respect to the information in this news release, its webcast presentation, its Q3 2018 Financial Statements and Q3 2018 MD&A, as well as certain additional historical supplemental financial information, including on a proforma basis for the SBG and BetEasy acquisitions. To access via tele-conference, please dial +1 855-327-6838 or +1-631-891-4304 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 10005822. To access the webcast please use the following link: http://public.viavid.com/index.php?id=132084

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 September 30, 2018

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


International


United Kingdom


Australia


Corporate


Consolidated

Net earnings (loss)


137,507


(28,635)


(25,973)


(73,169)


9,730












Income tax recovery





13,189


13,189

Net financing charges





(74,360)


(74,360)












Operating income (loss)


137,507


(28,635)


(25,973)


(11,998)


70,901












Depreciation and amortization


34,398


53,642


10,855


43


98,938

Add (deduct) the impact of the following:











Acquisition-related costs and deal contingent forwards





1,667


1,667

Stock-based compensation





3,154


3,154

Loss from investments and associates


123





123

Impairment of intangibles assets and assets held for sale


3,869





3,869

Other costs


6,331


2,936


10,354


(21)


19,600

Total adjusting items


10,323


2,936


10,354


4,800


28,413












Adjusted EBITDA


182,228


27,943


(4,764)


(7,155)


198,252

 



Nine Months Ended September 30, 2018

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


International


United Kingdom


Australia


Corporate


Consolidated

Net earnings (loss)


412,723


(28,635)


(33,620)


(421,201)


(70,733)












Income tax recovery





15,438


15,438

Net financing charges





(273,071)


(273,071)

Net earnings from associates


1,068





1,068












Operating income (loss)


411,655


(28,635)


(33,620)


(163,568)


185,832












Depreciation and amortization


108,354


53,642


20,723


62


182,781

Add (deduct) the impact of the following:











Acquisition-related costs and deal contingent forwards





112,485


112,485

Stock-based compensation





8,802


8,802

Loss from investments and associates


370





370

Impairment of intangibles assets and assets held for sale


4,943





4,943

Other costs


7,703


2,936


20,758


14,935


46,332

Total adjusting items


13,016


2,936


20,758


136,222


172,932












Adjusted EBITDA


533,025


27,943


7,861


(27,284)


541,545

 



Three Months Ended September 30, 2017

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


International


United Kingdom


Australia


Corporate


Consolidated

Net earnings (loss)


130,493




(54,619)


75,874












Income tax recovery





(2,186)


(2,186)

Net financing charges





(38,095)


(38,095)

Net loss from associates


(2,569)





(2,569)










Operating income (loss)


133,062




(14,338)


118,724












Depreciation and amortization


36,626




5


36,631

Add (deduct) the impact of the following:











Stock-based compensation





3,298


3,298

Gain from investments


(8,920)





(8,920)

Reversal of impairment of intangibles assets and assets held for sale


(1,117)





(1,117)

Other costs


3,229




3,922


7,151

Total adjusting items


(6,808)




7,220


412












Adjusted EBITDA


162,880




(7,113)


155,767

 



Nine Months Ended September 30, 2017

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


International


United Kingdom


Australia


Corporate


Consolidated

Net earnings (loss)


378,666




(166,556)


212,110












Income tax recovery





(856)


(856)

Net financing charges





(119,593)


(119,593)

Net loss from associates


(2,569)





(2,569)












Operating income (loss)


381,235




(46,107)


335,128












Depreciation and amortization


108,814




152


108,966

Add (deduct) the impact of the following:











Stock-based compensation








7,914


7,914

Gain from investments


(9,137)




(4,429)


(13,566)

Reversal of impairment of intangibles assets and assets held for sale


(6,162)




(2,267)


(8,429)

Other costs


3,514




19,778


23,292

Total adjusting items


(11,785)




20,996


9,211












Adjusted EBITDA


478,264




(24,959)


453,305

 



Three Months Ended
September
 30,


Nine Months Ended
September
 30,

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


2018


2017


2018


2017

Net (loss) earnings


9,730


75,874


(70,733)


212,110

Income tax (recovery) expense


(13,189)


2,186


(15,438)


856

Net loss (earnings) before tax


(3,459)


78,060


(86,171)


212,966

Add (deduct) the impact of the following:





Interest accretion


8,984


10,767


30,064


35,708

Loss on debt extinguishment


18,521



143,497


Re-measurement of contingent consideration


5,056



8,753


Re-measurement of derivatives


(11,300)



(11,300)


Ineffectiveness of cash flow hedges


(11,949)



(11,949)


Acquisition-related costs and deal contingent forwards


1,667



112,485


Amortization of acquisition intangibles


92,107


31,077


154,965


93,227

Stock based compensation


3,154


3,298


8,802


7,914

(Gain) loss from investments and associates


123


(6,353)


(698)


(10,998)

Impairment (reversal of impairment) of intangibles assets and assets held for sale


3,869


(1,117)


4,943


(8,429)

Other costs (income)


19,600


7,151


46,332


23,292

Income tax impact of the above


(6,873)


(3,288)


(10,438)


(6,690)

Adjusted net earnings


119,500


119,595


389,285


346,990

Adjusted net earnings attributable to









Shareholders of The Stars Group Inc.


119,961


119,595


389,430


346,990

Non-controlling interest


(461)



(145)







Weighted average diluted number of shares


269,526,633


204,800,009


232,640,294


202,796,952

Adjusted Diluted Net Earnings per Share attributable to
Shareholders of The Stars Group Inc


0.45


0.58


1.67


1.71

 

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



Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


2018


2017

In thousands of U.S. Dollars


$000's


$000's


$000's


$000's

Integration costs


17,088



28,555


Financial (income) expenses


(4,948)


2,839


(2,899)


3,062

Termination of employment agreements


4,486


1,358


6,544


4,166

AMF and other investigation professional fees


(888)


(1,265)


3,771


3,888

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


4,260


2,916


9,918


12,233

Non-recurring professional fees


1,423


664


1,976


2,168

Retention bonuses


25


41


259


1,271

Loss on disposal of assets



338


41


599

Austria gaming duty


(3,679)



(3,679)


(5,000)

Termination of affiliate agreements





407

Other


1,833


260


1,846


498

Other costs


19,600


7,151


46,332


23,292

 

The tables below present reconciliations of proforma Adjusted EBITDA to operating income (loss), which is the nearest IFRS measure:



Proforma Three Months Ended September 30, 2018

In millions of U.S. Dollars


International


United Kingdom


Australia1


Corporate


Consolidated

Operating income (loss)


137.5


(67.9)


(26.0)


(12.0)


31.6












Depreciation and amortization


34.4


102.5


10.9



147.8

Add (deduct) the impact of the following:











Acquisition related costs



2.9


10.3


1.7


14.9

Impairment of intangible assets


3.9





3.9

Other Adjustments


6.4




3.1


9.5

Total adjusting items


10.3


2.9


10.3


4.8


28.3












Adjusted EBITDA


182.2


37.5


(4.8)


(7.2)


207.7

 



Proforma Three Months Ended September 30, 2017

In millions of U.S. Dollars


International


United Kingdom


Australia1


Corporate


Consolidated

Operating income (loss)


133.1


(24.7)


(10.0)


(14.3)


84.1












Depreciation and amortization


36.6


79.4


6.0



122.0

Add (deduct) the impact of the following:











Impairment of intangible assets


(1.1)





(1.1)

Other Adjustments


(5.7)



1.1


7.2


2.6

Total adjusting items


(6.8)



1.1


7.2


1.5












Adjusted EBITDA


162.9


54.7


(2.9)


(7.1)


207.6

 



Proforma Nine Months Ended September 30, 2018

In millions of U.S. Dollars


International


United Kingdom


Australia1


Corporate


Consolidated

Operating income (loss)


411.7


(177.8)


(35.4)


(163.5)


35.0












Depreciation and amortization


108.4


269.9


25.6



403.9

Add (deduct) the impact of the following:











Acquisition related costs



2.9


10.3


112.5


125.7

Impairment of intangible assets


4.8





4.8

Transaction related costs



66.4




66.4

Other Adjustments


8.1



13.0


23.7


44.8

Total adjusting items


12.9


69.3


23.3


136.2


241.7












Adjusted EBITDA


533.0


161.4


13.5


(27.3)


680.6

 



Proforma Nine Months Ended September 30, 2017

In millions of U.S. Dollars


International


United Kingdom


Australia1


Corporate


Consolidated

Operating income (loss)


381.2


(80.0)


(16.2)


(46.1)


238.9












Depreciation and amortization


108.8


232.9


17.1


0.2


359.0

Add (deduct) the impact of the following:











Impairment of intangible assets


(6.1)


8.1



(2.3)


(0.3)

Other Adjustments


(5.6)



2.6


23.2


20.2

Total adjusting items


(11.7)


8.1


2.6


20.9


19.9












Adjusted EBITDA


478.3


161.0


3.5


(25.0)


617.8


_____________________________

1 The Australia segment supplementary information includes the results of operations of William Hill Australia beginning with its acquisition on April 24, 2018. In August 2018, The Stars Group substantially completed its migration of customers and platforms and integration of William Hill Australia into BetEasy.

 

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 September 30,


Nine Months Ended September 30,

In thousands of U.S. Dollars


2018


2017


2018


2017

Net cash inflows from operating activities


73,227


144,870


369,307


370,843

Customer deposit liability movement


1,552


(2,884)


(12,349)


22,398



74,779


141,986


356,958


393,241

Capital Expenditure:









Additions to deferred development costs


(16,496)


(6,275)


(32,686)


(16,701)

Additions to property and equipment


(9,530)


(3,253)


(18,791)


(5,507)

Additions to intangible assets


(4,426)


(565)


(16,268)


(1,484)

Interest paid


(62,113)


(30,556)


(128,391)


(95,620)

Debt principal repayments


(8,937)


(6,031)


(20,430)


(18,901)

Free Cash Flow


(26,723)


95,306


140,392


255,028

 

The table below presents a reconciliation of Net Debt:

In thousands of U.S. Dollars

As at September 30, 2018

Current portion of long-term debt

35,750

Long-term debt

5,483,900

Less: Cash and cash equivalents - operational

418,896

Net Debt

5,100,754

 

For additional information on The Stars Group's non-IFRS measures, see below and the Q3 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 global leader in the online and mobile gaming and interactive entertainment industries, entertaining millions of customers across its online real- and play-money poker, gaming and betting product offerings, which are delivered through both mobile and desktop applications and the web. The Stars Group offers these products directly or indirectly under several ultimately owned or licensed gaming and related consumer businesses and brands, including, among others, PokerStars, PokerStars Casino, BetStars, Full Tilt, 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 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 certain future operational and growth plans and strategies, and certain financial items relating to the full year 2019 results. 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, including, without limitation, Sky Betting & Gaming and BetEasy; 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, 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 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; 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, including, without limitation, the acquisition of Sky Betting & Gaming and the Australian acquisitions. 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 The Stars Group's annual information form for the year ended December 31, 2017, including under the heading "Risk Factors and Uncertainties", in the June 21, 2018 prospectus supplement to the short form base shelf prospectus dated January 16, 2018 under the heading "Risk Factors", and in the Q3 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 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, including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Earnings, Adjusted Diluted Net Earnings per Share, Free Cash Flow, Net Debt and the numerator of QNY. 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, stock-based compensation, restructuring, net earnings (loss) on associate, and certain other items. In addition, beginning with the Q3 2018 MD&A, adjustments are made for (i) the re-measurement of contingent consideration, which was previously included in, and adjusted for through, interest accretion, but starting with the Q3 2018 Financial Statements it is now a separate line item, (ii) the re-measurement of embedded derivatives and ineffectiveness on cash flow hedges, each of which are 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, 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 of The Stars Group. 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 9 in the Q3 2018 Financial Statements. For the three and nine months ended September 30, 2018, Diluted Shares used for the calculation of Adjusted Diluted Net Earnings per Share equalled 269,526,633 and 232,640,294, respectively, compared with 204,800,009 and 202,796,952 for the same periods in 2017, 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), as set out in the reconciliation tables under "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures" above. The Corporation 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 Corporation to use for financial or operational purposes.

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

To show the foreign exchange impact due to translation and purchasing power the Corporation calculates revenue on a constant currency basis, by translating the International segment's revenue for the three and nine months ended September 30, 2018 using the prior year's monthly exchange rates for its local source 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 above and the Q3 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 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 relevant period. The Stars Group defines unique 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. For the purpose of the three months ended September 30, 2018, QAUs for the United Kingdom reporting segment also include the applicable pre-acquisition period.

QNY means combined revenue for The Stars Group's lines of operation (i.e., Poker, Gaming and/or Betting, as applicable), 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 United Kingdom reporting segment's definition of QNY includes revenue noted in the definition above for the full financial quarter, including the pre-acquisition period.  QNY is a non-IFRS measure. The Stars Group does not provide a reconciliation for the numerator of QNY as the revenue components thereof are set forth in this news release.

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 (which management believes is substantially complete as of the date hereof), the integration of Sky Betting & Gaming, and the implementation of its new operating and reporting segments, and once complete, The Stars Group may revise or remove currently presented key metrics or non-IFRS measures or report certain additional or other key metrics or non-IFRS measures in the future.

For additional information on The Stars Group's key metrics and other data, see the Q3 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 September 30,


Nine Months Ended September 30,

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


2018



2017



2018



2017

Revenues


571,983



329,443



1,376,386



952,065

Cost of revenue


(129,226)



(62,477)



(293,127)



(177,605)

Gross profit


442,757



266,966



1,083,259



774,460

General and administrative


(267,463)



(109,096)



(671,556)



(322,344)

Sales and marketing


(92,531)



(33,116)



(196,848)



(98,475)

Research and development


(11,862)



(6,030)



(29,023)



(18,513)

Operating income


70,901



118,724



185,832



335,128

Net financing charges


(74,360)



(38,095)



(273,071)



(119,593)

Net earnings from associates




(2,569)



1,068



(2,569)

(Loss) earnings before income taxes


(3,459)



78,060



(86,171)



212,966

Income tax recovery


13,189



(2,186)



15,438



(856)

Net (loss) earnings


9,730



75,874



(70,733)



212,110

Net (loss) earnings attributable to












Shareholders of The Stars Group Inc.


15,127



76,082



(63,067)



211,987

Non-controlling interest


(5,397)



(208)



(7,666)



123

Net (loss) earnings


9,730



75,874



(70,733)



212,110

(Loss) earnings per Common Share (U.S. dollars)












Basic

$

0.06


$

0.52


$

(0.34)


$

1.45

Diluted

$

0.06


$

0.37


$

(0.34)


$

1.05

Weighted Average Common Shares Outstanding (thousands)












Basic


257,322



147,351



186,517



146,537

Diluted


269,527



204,800



186,517



202,797

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



As at September 30,


As at December 31,

In thousands of U.S. Dollars


2018


2017

ASSETS





Current assets





     Cash and cash equivalents - operational


418,896


283,225

     Cash and cash equivalents - customer deposits


327,765


227,098

Total cash and cash equivalents


746,661


510,323

Restricted cash advances and collateral


10,696


7,862

Prepaid expenses and other current assets


50,816


29,695

Current investments - customer deposits


104,125


122,668

Accounts receivable


154,102


100,409

Income tax receivable


29,643


16,540

Derivatives



2,037

Total current assets


1,096,043


789,534

Non-current assets





Restricted cash advances and collateral


10,700


45,834

Prepaid expenses and other non-current assets


27,496


26,551

Non-current accounts receivable


12,430


11,818

Property and equipment


76,745


44,837

Income tax receivable


11,805


14,061

Deferred income taxes


6,597


5,141

Derivatives


32,904


Goodwill and intangible assets


10,205,886


4,477,350

Total non-current assets


10,384,563


4,625,592

Total assets


11,480,606


5,415,126

LIABILITIES





Current liabilities





Accounts payable and other liabilities


434,087


194,187

Customer deposits


429,574


349,766

Current provisions


31,853


17,590

Derivatives


14,136


Income tax payable


91,864


35,941

Due to related parties


2,028


Current portion of long-term debt


35,750


4,990

Total current liabilities


1,039,292


602,474

Non-current liabilities





Long-term debt


5,483,900


2,353,579

Long-term provisions


4,268


3,093

Derivatives


21,093


111,762

Other long-term liabilities


91,521


Due to related parties


34,267


Income tax payable


12,825


24,277

Deferred income taxes


594,297


16,510

Total non-current liabilities


6,242,171


2,509,221

Total liabilities


7,281,463


3,111,695

EQUITY





Share capital


4,095,038


1,884,219

Reserves


(442,234)


(142,340)

Retained earnings


542,146


561,519

Equity attributable to the Shareholders of The Stars Group Inc.


4,194,950


2,303,398

Non-controlling interest


4,193


33

Total equity


4,199,143


2,303,431

Total liabilities and equity


11,480,606


5,415,126

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS






Nine Months Ended September 30,

In thousands of U.S. Dollars


2018


2017

Operating activities





Net (loss) earnings


(70,733)


212,110

Add (deduct):





Income tax (recovery) expense recognized in net earnings


(15,438)


856

Net financing charges


273,071


118,824

Depreciation and amortization


182,781


108,966

Unrealized loss (gain) on foreign exchange


58,954


(9,891)

Unrealized loss (gain) on investments


584


(9,332)

Impairment (reversal of impairment) of intangible assets and assets held for sale


4,901


(8,430)

Net (earnings) loss from associates


(1,068)


2,569

Realized loss (gain) on current investments and promissory note


420


(9,155)

Income taxes paid


(27,182)


(8,941)

Changes in non-cash operating elements of working capital


(49,805)


(10,284)

Customer deposit liability movement


12,349


(22,398)

Other


473


5,949

Net cash inflows from operating activities


369,307


370,843

Investing activities





Acquisition of subsidiaries, net of cash acquired


(1,865,262)


(6,516)

Additions to intangible assets


(16,268)


(1,484)

Additions to property and equipment


(18,791)


(5,507)

Additions to deferred development costs


(32,686)


(16,701)

Net sale of investments utilizing customer deposits


18,543


4,466

Cash movement from (to) restricted cash


35,000


Settlement of promissory note



8,084

Net investment in associates


1,068


(2,000)

Proceeds on disposal of interest in associate classified as held for sale



16,127

Other


(1,074)


(6,577)

Net cash outflows from investing activities


(1,879,470)


(10,108)

Financing activities





Issuance of Common Shares


717,250


Transaction costs on issuance of Common Shares


(32,312)


Issuance of Common Shares in relation to stock options


30,572


9,921

Redemption of SBG preferred shares and payment of shareholder loan on acquisition


(674,286)


Issuance of long-term debt


5,957,976


Repayment of long-term debt


(2,865,456)


(133,901)

Repayment of long-term debt assumed on business combination


(1,079,729)


Interest paid


(36,559)


(4,719)

Transaction costs on long-term debt


31,730


Net proceeds on related party debt


(128,391)


(95,620)

Payment of deferred consideration



(197,510)

Settlement of derivatives


(125,822)


13,904

Acquisition of further interest in subsidiaries


(48,240)


Settlement of margin



(7,602)

Capital contribution from non-controlling interest


12,060


Net cash inflows (outflows) from financing activities


1,758,793


(415,527)

Increase (decrease) in cash and cash equivalents


248,630


(54,792)

Unrealized foreign exchange difference on cash and cash equivalents


(12,292)


14,298

Cash and cash equivalents – beginning of period


510,323


267,684

Cash and cash equivalents - end of period


746,661


227,190

 



For investor relations and media inquiries, please contact: Vaughan Lewis, Group Director of Investor Relations and Corporate Communications, Tel: +1 437-371-5730, ir@starsgroup.com, press@starsgroup.com


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