Market Overview

The Stars Group Reports Third Quarter 2017 Results

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TORONTO, Nov. 9, 2017 /PRNewswire/ - The Stars Group Inc. (NASDAQ: TSG; TSX: TSGI) today reported its financial results for the third quarter ended September 30, 2017, reconfirmed its full year 2017 financial guidance ranges and provided certain additional highlights and updates. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

"Our operations and management continued to perform in the third quarter, delivering strong year-over-year growth bolstered by the launch of Stars Rewards," said Rafi Ashkenazi, Chief Executive Officer. "Not only did we see improvement in our poker business, but our casino continues to grow with a significant active player base and our online sportsbook continues to see meaningful growth in turnover. To build upon these achievements, we plan to focus on reinvesting in our core products and increasing our investment in marketing for the remainder of 2017 and into 2018 while continuing to explore further growth opportunities."

Third Quarter and Year-to-Date 2017 Financial Summary(1)



Three Months Ended September 30,


Year-
over-Year Change


Nine Months Ended September 30,


Year-
over-Year Change

$000's, except percentages and per share amounts


2017


2016




2017


2016



Total Revenue


329,443


270,681


21.7%


952,065


844,961


12.7%

Adjusted EBITDA


155,767


123,164


26.5%


453,305


376,489


20.4%

Net cash inflows from operating activities


144,870


86,693


67.1%


370,843


201,641


83.9%

Adjusted Cash Flow from Operations


141,986


84,976


67.1%


393,241


278,122


41.4%

Net earnings


75,874


12,523


505.9%


212,110


90,511


134.3%

Adjusted Net Earnings


119,595


84,979


40.7%


346,990


259,686


33.6%

Diluted earnings per common share


$ 0.37


$ 0.06


516.7%


$ 1.05


$ 0.47


123.4%

Adjusted Net Earnings per Diluted Share


$ 0.58


$ 0.42


38.1%


$ 1.71


$ 1.34


27.6%

 

__________________________________________________
(1) For important information on The Stars Group's non-IFRS measures, see below under "Non-IFRS and Non-U.S. GAAP Measures" and the tables under "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures".

Third Quarter 2017 and Subsequent Financial Highlights

  • Revenues – Total revenues for the quarter increased approximately 21.7% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, total revenues for the quarter would have increased by approximately 16.8%.  Real-money online poker revenues and real-money online casino and sportsbook combined revenues represented approximately 67.2% and 28.9% of total revenues for the quarter, respectively, as compared to approximately 72.7% and 23.7% for the prior year period. 
  • Poker Revenues – Real-money online poker revenues for the quarter were $221.4 million, or an increase of approximately 12.5% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, real-money online poker revenues would have increased by approximately 7.5% for the quarter. The year-over-year increase was primarily driven by the implementation of the Stars Rewards loyalty program.
  • Casino & Sportsbook Revenues – Real-money online casino and sportsbook combined revenues for the quarter were $95.2 million, or an increase of approximately 48.3% year-over-year.  Excluding the impact of year-over-year changes in foreign exchange rates, real-money online casino and sportsbook combined revenues would have increased by approximately 43.3% for the quarter.
  • Debt – Total long-term debt outstanding at the end of the quarter was $2.45 billion with a weighted average interest rate of 4.7%. In mid-September, The Stars Group prepaid without penalty an additional $75 million under its second lien term loan using cash on its balance sheet and cash flow from operations. The principal balance of the second lien term loan as of the date hereof is $95 million.

Third Quarter 2017 and Subsequent Operational Highlights

  • Quarterly Real-Money Active Uniques (QAUs) – Total QAUs were approximately 2.1 million, an increase of 2.1% year-over-year led by the re-launch of PokerStars in Portugal in late 2016 and the growth and expansion of The Stars Group's real-money online casino and sportsbook offerings. Approximately 2.0 million of such QAUs played online poker during the quarter, which remained virtually flat year-over-year. The Stars Group's online casino offerings had approximately 553,000 QAUs, an increase of 20.1% year-over-year, which The Stars Group continues to estimate is one of the largest casino player bases among its competitors, while its emerging online sportsbook offerings had approximately 273,000 QAUs, a 14.8% increase year-over-year.
  • Quarterly Net Yield (QNY) – Total QNY was $150, an increase of 18.8% year-over-year, and QNY excluding the impact of year-over-year changes in foreign exchanges rates was $144, an increase of 13.9% year-over-year. QNY is a non-IFRS measure.
  • Customer Registrations – Customer Registrations increased by 2.0 million during the quarter to approximately 115 million.
  • Launch of Stars Rewards – In July, The Stars Group launched the Stars Rewards program, which is an integrated cross-vertical loyalty program focused on customer engagement, retention and experience. This program seeks to offer an exciting, personalized gaming experience that rewards players for their overall gameplay across poker, casino and sportsbook, in each case where available. The Stars Group believes that Stars Rewards has enhanced and will continue to enhance the player experience as it introduces new ways of earning rewards that are intended to be more exciting for its recreational players and distributes the rewards based on, among other things, player contributions to the overall ecosystem. To date, approximately 85% of active customers have elected to participate in Stars Rewards and nearly $45 million in prizes have been awarded.  The Stars Group believes the program has positively impacted the overall product ecosystem across verticals and continues to receive positive feedback from most players.

Full Year Guidance

  • Full Year Guidance – The Stars Group reconfirmed its 2017 full year financial guidance ranges as previously announced on September 15 and continues to expect the following:

    • Revenues of between $1,285 and $1,315 million;
    • Adjusted EBITDA of between $590 and $610 million;
    • Adjusted Net Earnings of between $445 and $469 million; and
    • Adjusted Net Earnings per Diluted Share of between $2.17 and $2.31.

These estimates reflect management's view of current and future market and business conditions, including assumptions of (i) negative operating conditions in Poland primarily related to constraints on processing payments in that jurisdiction, the cessation of real-money online poker in Australia on September 11, 2017, and the cessation of real-money online gaming in Colombia on July 17, 2017, (ii) the introduction of Stars Rewards, (iii) no other material adverse regulatory events and (iv) no material foreign currency exchange rate fluctuations, particularly against the Euro, which is the primary depositing currency of The Stars Group's customers, that could impact customer purchasing power as it relates to The Stars Group's U.S. dollar denominated product offerings. Such guidance is also based on a Euro to U.S. dollar exchange rate of 1.18 to 1.00 and all other currencies at their average exchange rate for the month of August, in each case for the remainder of 2017, unaudited expected results and certain accounting assumptions.

Financial Statements, Management's Discussion and Analysis and Additional Information; Internal Control Over Financial Reporting

For an update regarding The Stars Group's internal control over financial reporting, including its remediation efforts with respect to the same, see "Disclosure Controls and Procedures and Internal Control Over Financial Reporting" in The Stars Group's management's discussion and analysis for the year ended December 31, 2016 (the "2016 MD&A") and in The Stars Group's management's discussion and analysis for the three and nine months ended September 30, 2017 (the "Q3 2017 MD&A").

The Stars Group's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2017 (the "Q3 2017 Financial Statements"), Q3 2017 MD&A and 2016 MD&A, as well as additional information relating to The Stars Group and its business, can be found on SEDAR at www.sedar.com, Edgar at www.sec.gov and The Stars Group's website at www.starsgroup.com.

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

Conference Call and Webcast

The Stars Group will host a conference call today, November 9, 2017 at 8:30 a.m. ET to discuss its financial results for the third quarter 2017 and related matters. To access via tele-conference, please dial +1 855-327-6837 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 10003774. To access the webcast please use the following link: http://public.viavid.com/index.php?id=127063

Reconciliation of Non-IFRS Measures to Nearest IFRS Measures

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




Three Months Ended September 30,



Nine Months Ended September 30,

$000's, except per share amounts


2017



2016



2017



2016

Net earnings



75,874




12,523




212,110




90,511

Financial expenses



41,040




49,458




123,326




101,734

Income taxes expense (recovery)



2,186




(400)




856




4,078

Depreciation of property and equipment



2,178




2,119




6,555




6,109

Amortization of intangible and deferred development costs



34,453




33,326




102,411




96,919

EBITDA



155,731




97,026




445,258




299,351

Stock-based compensation



3,298




1,978




7,914




8,396

Termination of employment agreements



1,357




3,047




4,165




11,365

Termination of affiliate agreements






1,053




407




3,386

Loss on disposal of assets



338




246




599




562

(Gain) loss from investments



(9,024)




10,589




(14,236)




14,550

Acquisition-related costs











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