TORONTO, March 14, 2018 /PRNewswire/ - The
Stars Group Inc. (NASDAQ: TSG; TSX: TSGI) today reported its
financial results for the fourth quarter and year ended
December 31, 2017 and provided 2018
full year financial guidance ranges, as well as certain additional
highlights and updates. Unless otherwise noted, all dollar ($)
amounts are in U.S. dollars.
"2017 marked our evolution and transformation into The Stars
Group," said Rafi Ashkenazi, Chief Executive Officer. "We
maintained our global dominance in online poker, with the business
experiencing year-over-year growth in that vertical, our online
casino has already become one of the largest in the world since its
launch in 2014, and our emerging online sportsbook not only
recorded meaningful growth in turnover and revenues, but started to
become a secondary customer acquisition channel."
"During the year, we strengthened our core senior management
team, delivered another year of record revenues, significantly
deleveraged and continued to strengthen our balance sheet, all
while investing in marketing, growth initiatives and technology
infrastructure to support the long-term growth of our business,"
added Ashkenazi. "In 2018, we are continuing to execute on
our growth initiatives, including through geographic expansion,
inorganic growth, and improving our focus on and understanding of
our customers, and we are beginning to realize our goal of becoming
the world's favorite iGaming destination."
Fourth Quarter and Full Year 2017 Financial
Summary(1)
|
|
Three Months Ended
December 31,
|
|
Year-over-
Year Change
|
|
Year Ended
December 31,
|
|
Year-over-
Year
Change
|
$000's, except
percentages and per share amounts
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
Revenue
|
|
360,247
|
|
310,286
|
|
16.1%
|
|
1,312,315
|
|
1,155,247
|
|
13.6%
|
Net
earnings
|
|
47,175
|
|
45,039
|
|
4.7%
|
|
259,285
|
|
135,550
|
|
91.3%
|
Diluted net earnings
per common share
|
|
$0.23
|
|
$0.23
|
|
0.0%
|
|
$1.27
|
|
$0.70
|
|
81.4%
|
Adjusted
EBITDA
|
|
147,002
|
|
147,604
|
|
-0.4%
|
|
600,306
|
|
524,093
|
|
14.5%
|
Adjusted Net
Earnings
|
|
111,951
|
|
107,013
|
|
4.6%
|
|
458,940
|
|
366,699
|
|
25.2%
|
Adjusted Net Earnings
per Diluted Share
|
|
$0.54
|
|
$0.53
|
|
1.9%
|
|
$2.25
|
|
$1.88
|
|
19.7%
|
Net cash inflows from
operating activities
|
|
123,757
|
|
148,295
|
|
-16.5%
|
|
494,600
|
|
349,936
|
|
41.3%
|
Adjusted Cash Flow
from Operations
|
|
132,283
|
|
142,806
|
|
-7.4%
|
|
525,524
|
|
420,928
|
|
24.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________________________________________________
|
(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 IFS
Measures". The financial information presented in this news release
was derived from the 2017 Annual Financial Statements (as defined
below).
|
Fourth Quarter and Full Year 2017 and Subsequent Financial
Highlights
- Revenues – Revenues for the quarter and year increased
approximately 16.1% and 13.6% year-over-year, respectively.
Excluding the impact of year-over-year changes in foreign exchange
rates, revenues for the quarter and year would have increased by
approximately 7.8% and 10.5%, respectively. Real-money online poker
revenues and real-money online casino and sportsbook combined
revenues represented approximately 65.1% and 31.2% of revenues for
the quarter, respectively, and 66.9% and 29.3% for the year,
respectively, as compared to approximately 70.0% and 25.8% and
73.2% and 22.9% for the applicable prior year periods.
- Poker Revenues – Real-money online poker revenues for
the quarter were $234.4 million, or
an increase of approximately 7.9% year-over-year, and $877.3 million for the year, or an increase of
approximately 3.7% 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 1.9% and 0.9%
for the quarter and year, respectively. In 2017, The Stars Group
saw a positive impact from its previously announced strategy of
focusing on recreational players and the introduction of Stars
Rewards, which helped counter certain regulatory headwinds,
including the cessation of operations in certain markets, such as
Australia and Colombia.
- Casino & Sportsbook Revenues – Real-money online
casino and sportsbook combined revenues for the quarter were
$112.5 million, or an increase of
approximately 40.3% year-over-year, and $384.0 million for the year, or an increase of
approximately 45.4% 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 28.9% for the quarter and 42.2% for the year. In
2017, growth in real-money online casino and sportsbook combined
revenues was driven primarily by a combination of geographic
expansion and product improvements.
- Debt and Cash – Total long-term debt outstanding at the
end of the year was $2.45 billion
with a weighted average interest rate of 4.7%. As previously
disclosed, on March 3, 2017, The
Stars Group announced the successful repricing and retranching of
its U.S. dollar and Euro denominated first lien term loans
resulting in the reduction of the applicable interest rate margins
by 50 basis points, removing the Euribor floor on the Euro
denominated first lien term loans, and raising €100 million of
incremental Euro denominated first lien debt and using the same to
reduce its U.S. dollar denominated first lien debt. Throughout
2017, The Stars Group also prepaid without penalty approximately
$115 million under its second lien
term loan using cash flow from operations, reducing the outstanding
principal balance of such loan to $95
million. The Stars Group ended 2017 with approximately
$283 million in operational cash on
its balance sheet.
- Deferred Purchase Price – In May
2017, The Stars Group made its final payment on the
outstanding balance of the $400
million deferred purchase price for its acquisition of Stars
Interactive Group (formerly known as the Rational Group) in
August 2014.
Fourth Quarter 2017 and Subsequent Operational
Highlights
- Quarterly Real-Money Active Uniques (QAUs) – Total QAUs
were approximately 2.17 million, a decrease of approximately 7.2%
year-over-year primarily led by the Corporation's strategy of
focusing on positive return customer relationship management
initiatives to attract high-value, net-depositing customers
(primarily recreational players) and the cessation of operations or
difficult operating conditions in certain markets including
Australia, Columbia and the
Czech Republic. Approximately 2.03
million of such QAUs played online poker during the quarter, a
decrease of approximately 9.3% year-over-year, while The Stars
Group's online casino offerings had approximately 607,000 QAUs, a
0.2% increase year-over-year, which The Stars Group continues to
estimate as one of the largest active casino player bases among its
competitors. The Stars Group's emerging online sportsbook offerings
had approximately 313,000 QAUs, a 26.9% increase
year-over-year.
- Quarterly Net Yield (QNY) – Total QNY was $160, an increase of 25.6% year-over-year, and
QNY excluding the impact of year-over-year changes in foreign
exchange rates was $154, an increase
of 21.0% year-over-year. QNY is a non-IFRS measure.
- Net Deposits – Net Deposits were $326.9 million, an increase of 15.0%
year-over-year.
- Customer Registrations – Customer Registrations
increased by 2.1 million during the quarter.
- Stars Rewards – In July
2017, The Stars Group launched the Stars Rewards integrated
cross-vertical loyalty program, which is focused on customer
engagement, retention and experience. 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 90%
of customers opt into the program on a daily basis and engagement
is strong with approximately 97% of rewards claimed. The Stars
Group believes the program has positively impacted the overall
product ecosystem across verticals and continues to receive
positive feedback from most players.
- CrownBet and William Hill Australia – As previously
disclosed on February 27, 2018, The
Stars Group acquired a 62% equity interest in CrownBet Holdings Pty
Limited, an Australian-based online sportsbook, from Crown Resorts
Limited for an aggregate amount of $117.7
million using cash on The Stars Group's balance sheet. On
March 6, 2018, The Stars Group also
entered into agreements to increase its equity interest in CrownBet
from 62% to 80% and for CrownBet to acquire William Hill Australia
Holdings Pty Ltd. ("William Hill Australia"), an Australian-based
online sportsbook. The aggregate purchase price for both
transactions will be approximately $315
million, of which $234 million
will be payable in cash for William Hill Australia and the
remainder will be payable in approximately 3.1 million newly-issued
common shares of The Stars Group. The management team of CrownBet
will be entitled to an additional payment of up to $182 million in 2020 subject to certain
performance conditions and payable in cash, additional common
shares of The Stars Group or a combination thereof, at The Stars
Group's discretion. To finance the cash portion of the purchase
price for the transactions, The Stars Group obtained committed
financing for a $325 million
incremental first lien term loan. The Stars Group currently expects
the transactions to close in April
2018. Mr. Matthew Tripp,
CrownBet's Chief Executive Officer, will remain in his position and
continue to operate the combined business in Australia. Under the transaction agreements,
The Stars Group is entitled to appoint a majority of the directors
on the board of directors of CrownBet.
- Nominee Agreement and Appointment of Board Observer – As
previously disclosed on January 10,
2018, The Stars Group entered into an agreement with Mr.
Tang Hao and his affiliated entity Discovery Key Investments
Limited, which based on publicly available information currently
hold approximately 17.9% of the outstanding common shares of The
Stars Group. In connection with that agreement, Mr. Melvin Zhang was appointed as an observer to the
board of directors of The Stars Group as a nominee of Mr. Tang. Mr.
Zhang will serve as an observer until such time as he and Mr. Tang
have received certain licenses and approvals from certain of The
Stars Group's gaming regulatory authorities, at which point he will
join the board of directors as a director. Also pursuant to the
agreement, Mr. Tang is subject to certain restrictions on director
nominations and share ownership, including certain standstill
restrictions with respect to acquiring greater than 20% of the
outstanding common shares of The Stars Group.
2018 Full Year Guidance
- Full Year Guidance – The Stars Group currently expects
the following 2018 full year financial guidance ranges:
-
- Revenues of between $ $1,390 and $1,470
million;
- Adjusted EBITDA of between $625 and $650
million;
- Adjusted Net Earnings of between $487 and $512
million; and
- Adjusted Net Earnings per Diluted Share of between
$2.33 and $2.47.
These unaudited expected results
reflect The Stars Group's existing business and exclude the
recently announced acquisition of a majority interest in CrownBet
and the proposed acquisition of William Hill Australia. These
expectations also reflect management's view of current and future
market and business conditions, including assumptions of (i)
potential negative operating conditions in Russia expected to begin in May 2018, (ii) no other material regulatory
events, and (iii) no material foreign currency exchange rate
fluctuations, particularly against the Euro. Such guidance is also
based on a Euro to U.S. dollar exchange rate of 1.20 to 1.00,
Diluted Shares of between 207,000,000 and 209,000,000 for the high
and low ends of the Adjusted Net Earnings per Diluted Share range,
respectively, and certain accounting assumptions.
Annual Information Form, 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 of 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,
2017 (the "2017 Annual MD&A").
The Stars Group's annual information form for the year ended
December 31, 2017 (the "2017 AIF"),
audited consolidated financial statements for the year ended
December 31, 2017 and the notes
thereto (the "2017 Annual Financial Statements") and the 2017
Annual 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, March 14, 2018 at 8:30
a.m. ET to discuss its financial results for the fourth
quarter and year ended 2017 and related matters. To access via
tele-conference, please dial +1 877-451-6152 or +1 201-389-0879 ten
minutes prior to the scheduled start of the call. The playback will
be made available two hours after the event at +1 844-512-2921 or
+1 412-317-6671. The Conference ID number is 13677106. To access
the webcast please use the following link:
http://public.viavid.com/index.php?id=128615
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
December 31,
|
|
Year Ended
December 31,
|
$000's, except per
share amounts
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net
earnings
|
47,175
|
|
45,039
|
|
259,285
|
|
135,550
|
Financial
expenses
|
39,713
|
|
36,565
|
|
163,039
|
|
138,299
|
Income taxes expense
(recovery)
|
26,352
|
|
(78)
|
|
27,208
|
|
4,000
|
Depreciation of
property and equipment
|
2,370
|
|
2,072
|
|
8,925
|
|
8,181
|
Amortization of
intangible and deferred development costs
|
35,851
|
|
34,783
|
|
138,261
|
|
131,702
|
EBITDA
|
151,461
|
|
118,381
|
|
596,718
|
|
417,732
|
Stock-based
compensation
|
2,708
|
|
1,893
|
|
10,622
|
|
10,289
|
Termination of
employment agreements
|
1,677
|
|
3,643
|
|
5,842
|
|
15,008
|
Termination of
affiliate agreements
|
—
|
|
1,099
|
|
407
|
|
4,485
|
Loss on disposal of
assets
|
—
|
|
361
|
|
599
|
|
923
|
(Gain) loss from
investments
|
(20,288)
|
|
4,749
|
|
(34,524)
|
|
19,278
|
Acquisition-related
costs
|
—
|
|
—
|
|
—
|
|
199
|
Gain on settlement of
deferred consideration
|
—
|
|
(2,466)
|
|
—
|
|
(2,466)
|
Net loss (earnings)
from associates and (reversal of) impairment of
assets held for sale, associates and intangible assets
|
1,631
|
|
9,646
|
|
(4,230)
|
|
16,308
|
Other costs (see
table below)
|
9,813
|
|
10,298
|
|
24,872
|
|
42,337
|
Adjusted
EBITDA
|
147,002
|
|
147,604
|
|
600,306
|
|
524,093
|
Current income tax
expense
|
(1,224)
|
|
(2,570)
|
|
(7,914)
|
|
(8,384)
|
Depreciation and
amortization (excluding amortization of purchase
price allocation intangibles)
|
(7,145)
|
|
(5,779)
|
|
(22,885)
|
|
(18,138)
|
Interest †
|
(26,682)
|
|
(32,242)
|
|
(110,567)
|
|
(130,872)
|
Adjusted Net
Earnings
|
111,951
|
|
107,013
|
|
458,940
|
|
366,699
|
Diluted
Shares
|
206,807,485
|
|
200,132,710
|
|
203,707,589
|
|
195,432,920
|
Adjusted Net
Earnings per Diluted Share
|
$
|
0.54
|
|
$
|
0.53
|
|
$
|
2.25
|
|
$
|
1.88
|
† Excluding interest accretion and non-refundable late
payment fees related to the unpaid balance of the deferred purchase
price for the Stars Interactive Group Acquisition in 2016.
The table below presents certain items comprising "Other costs"
in the reconciliation table above:
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
|
2017
$000's
|
|
2016
$000's
|
|
2017
$000's
|
|
2016
$000's
|
|
|
|
|
|
Non-U.S. lobbying and
legal expenses
|
|
787
|
|
765
|
|
3,409
|
|
3,065
|
U.S. lobbying and
legal expenses
|
|
4,074
|
|
3,630
|
|
13,686
|
|
12,793
|
Strategic review
professional fees
|
|
—
|
|
2,965
|
|
125
|
|
10,338
|
Retention
bonuses
|
|
117
|
|
615
|
|
1,388
|
|
3,272
|
Non-recurring
professional fees
|
|
2,263
|
|
1,188
|
|
4,431
|
|
6,020
|
AMF and other
investigation professional fees
(net of insurance proceeds)
|
|
2,544
|
|
1,018
|
|
6,432
|
|
5,509
|
Austria gaming
duty
|
|
—
|
|
—
|
|
(5,000)
|
|
—
|
Office restructuring
and legacy business unit
shutdown costs
|
|
28
|
|
117
|
|
401
|
|
1,340
|
Other
costs
|
|
9,813
|
|
10,298
|
|
24,872
|
|
42,337
|
The table below presents a reconciliation of Adjusted Cash Flow
from Operations to net cash inflows from operating activities,
which is the nearest IFRS measure:
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
|
2017
$000's
|
|
2016
$000's
|
|
2017
$000's
|
|
2016
$000's
|
|
|
|
|
|
Net cash inflows from
operating activities
|
|
123,757
|
|
148,295
|
|
494,600
|
|
349,936
|
Customer deposit
liability movement
|
|
8,526
|
|
(5,489)
|
|
30,924
|
|
70,992
|
Adjusted Cash Flow
from Operations
|
|
132,283
|
|
142,806
|
|
525,524
|
|
420,928
|
The table below presents a reconciliation of the numerator of
QNY (i.e., real-money online poker revenue and real-money online
casino and sportsbook combined revenue) to the nearest IFRS measure
(i.e., revenue) as reported for the applicable period. Unless
otherwise noted, any deviation in the reconciliation below to
measures presented herein may be the result of immaterial
adjustments made in later periods due to certain accounting
reallocations.
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
2017
$000's
|
|
2016
$000's
|
|
|
|
Revenue
|
|
360,247
|
|
310,286
|
Corporate
revenue
|
|
(358)
|
|
(3)
|
Other
business-to-consumer revenue
|
|
(13,031)
|
|
(12,884)
|
Real-money online
poker revenue and real-money online casino and sportsbook combined revenue
|
|
346,858
|
|
297,399
|
The Stars Group has not provided a reconciliation of the
non-IFRS measures to the nearest IFRS measures included in its full
year 2018 financial guidance provided in this release, including
Adjusted EBITDA, Adjusted Net Earnings and Adjusted Net Earnings
per Diluted Share, because certain reconciling items necessary to
accurately project such IFRS measures, particularly net earnings
(loss), cannot be reasonably projected due to a number of factors,
including variability from potential foreign exchange fluctuations
impacting financial expenses, and the nature of other non-recurring
or one-time costs (which are excluded from non-IFRS measures but
included in net earnings (loss)), as well as the typical
variability arising from the audit of annual financial statements,
including, without limitation, certain income tax provision
accounting, and related accounting matters.
For additional information on The Stars Group's non-IFRS
measures, see below and the 2017 Annual MD&A, including under
the headings "Management's Discussion and Analysis" and "Selected
Financial Information—Other Financial Information".
About The Stars Group
The Stars Group is a leading provider of technology-based
products and services in the global gaming and interactive
entertainment industries. The Stars Group directly or indirectly,
including through its Stars Interactive Group division, owns gaming
and related consumer businesses and brands, such as PokerStars,
PokerStars Casino, BetStars, Full Tilt, and the PokerStars Players
No Limit Hold'em Championship, European Poker Tour, PokerStars
Caribbean Adventure, Latin American Poker Tour, Asia Pacific Poker
Tour, PokerStars Festival and PokerStars MEGASTACK live poker tour
and event brands. These brands together have millions of registered
customers globally and collectively form the largest poker business
in the world, comprising online poker games and tournaments,
sponsored live poker competitions, marketing arrangements for
branded poker rooms in popular casinos in major cities around the
world, and poker programming and content created for television and
online audiences. The Stars Group, through certain of these and
other brands, also offers non-poker gaming products, including
casino and sportsbook. The Stars Group, through certain of its
subsidiaries, is licensed or approved to offer, or offers under
third party licenses or approvals, its products and services in
various jurisdictions throughout the world, including in
Europe, both within and outside of
the European Union, Australia, the
Americas and elsewhere. In particular, PokerStars is the world's
most licensed online gaming brand, holding licenses or related
operating approvals in 17 jurisdictions.
Cautionary Note Regarding Forward Looking Statements
This news release contains forward-looking statements and
information within the meaning of the Private Securities Litigation
Reform Act of 1995 and applicable securities laws, including,
without limitation, certain financial and operational expectations
and projections, such as full year 2018 financial guidance, and
certain future operational and growth plans and strategies.
Forward-looking statements and information can, but may not always,
be identified by the use of words such as "anticipate", "plan",
"continue", "estimate", "expect", "may", "will", "project",
"predict", "potential", "targeting", "intend", "could", "might",
"would", "should", "believe", "objective", "ongoing", "imply",
"assumes", "goal", "likely" and similar references to future
periods or the negatives of these words and 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 customers and industries. Although The Stars
Group and management believe the expectations reflected in such
forward-looking statements and information are reasonable and are
based on reasonable assumptions and estimates as of the date
hereof, there can be no assurance that these assumptions or
estimates are accurate or that any of these expectations will prove
accurate. Forward-looking statements and information are inherently
subject to significant business, regulatory, economic and
competitive risks, uncertainties and contingencies that could cause
actual events to differ materially from those expressed or implied
in such statements. Specific risks and uncertainties include, but
are not limited to: the heavily regulated industry in which The
Stars Group carries on business; interactive entertainment and
online and mobile gaming generally; current and future laws or
regulations and new interpretations of existing laws or
regulations, or potential prohibitions, with respect to interactive
entertainment or online gaming or activities related to or
necessary for the operation and offering of online gaming;
potential changes to the gaming regulatory framework; legal and
regulatory requirements; ability to obtain, maintain and comply
with all applicable and required licenses, permits and
certifications to offer and market its products and services,
including difficulties or delays in the same; significant barriers
to entry; competition and the competitive environment within The
Stars Group's addressable markets and industries; impact of
inability to complete future acquisitions or to integrate
businesses successfully; risks associated with advancements in
technology, including artificial intelligence; ability to develop
and enhance existing products and services and new commercially
viable products and services; ability to mitigate foreign exchange
and currency risks; ability to mitigate tax risks and adverse tax
consequences, including, without limitation, the imposition of new
or additional taxes, such as value-added and point of consumption
taxes, and gaming duties; risks of foreign operations generally;
protection of proprietary technology and intellectual property
rights; ability to recruit and retain management and other
qualified personnel, including key technical, sales and marketing
personnel; defects in The Stars Group's products or services;
losses due to fraudulent activities; management of growth; contract
awards; potential financial opportunities in addressable markets
and with respect to individual contracts; ability of technology
infrastructure to meet applicable demand; systems, networks,
telecommunications or service disruptions or failures or
cyber-attacks; regulations and laws that may be adopted with
respect to the Internet and electronic commerce or that may
otherwise impact The Stars Group in the jurisdictions where it is
currently doing business or intends to do business, particularly
those related to online gaming or that could impact the ability to
provide online gaming products and services, including, without
limitation, as it relates to payment processing; ability to obtain
additional financing on reasonable terms or at all; refinancing
risks; customer and operator preferences and changes in the
economy; dependency on customers' acceptance of its products and
services; consolidation within the gaming industry; litigation
costs and outcomes; expansion within existing and into new markets;
relationships with vendors and distributors; and natural events.
Other applicable risks and uncertainties include, but are not
limited to, those identified in The Stars Group's 2017 AIF,
including under the heading "Risk Factors and Uncertainties", and
in the 2017 Annual MD&A, including under the headings "Risk
Factors and Uncertainties", "Limitations of Key Metrics and Other
Data" and "Key Metrics", each available on SEDAR at www.sedar.com,
EDGAR at www.sec.gov and The Stars Group's website at
www.starsgroup.com, and in other filings that The Stars Group has
made and may make with applicable securities authorities in the
future. Investors are cautioned not to put undue reliance on
forward-looking statements or information. Any forward-looking
statement or information speaks only as of the date hereof, and The
Stars Group undertakes no obligation to correct or update any
forward-looking statement, whether as a result of new information,
future events or otherwise, except as required by applicable
law.
Non-IFRS and Non-U.S. GAAP Measures
This news release references non-IFRS and non-U.S. GAAP
financial measures, including QNY, Adjusted EBITDA, Adjusted Cash
Flow from Operations, Adjusted Net Earnings, Adjusted Net Earnings
per Diluted Share, and the foreign exchange impact on revenues
(i.e., constant currency). The Stars Group believes these non-IFRS
and non-U.S. GAAP financial measures will provide investors with
useful supplemental information about the financial performance of
its business, enable comparison of financial results between
periods where certain items may vary independent of business
performance, and allow for greater transparency with respect to key
metrics used by management in operating its business. Although
management believes these financial measures are important in
evaluating The Stars Group, they are not intended to be considered
in isolation or as a substitute for, or superior to, financial
information prepared and presented in accordance with IFRS or U.S.
GAAP. They are not recognized measures under IFRS or U.S. GAAP and
do not have standardized meanings prescribed by IFRS or U.S. GAAP.
These measures may be different from non-IFRS and non-U.S. GAAP
financial measures used by other companies, limiting its usefulness
for comparison purposes. Moreover, presentation of certain of these
measures is provided for year-over-year comparison purposes, and
investors should be cautioned that the effect of the adjustments
thereto provided herein have an actual effect on The Stars Group's
operating results. In addition to QNY, which is defined below under
"Key Metrics and Other Data", The Stars Group uses the following
non-IFRS and non-U.S. GAAP measures in this release:
Adjusted EBITDA means net earnings before financial expenses,
income taxes expense (recovery), depreciation and amortization,
stock-based compensation, restructuring and certain other
items.
Adjusted Cash Flow from Operations means net cash inflows from
operating activities after adding back customer deposit liability
movements, and which The Stars Group first introduced for the
quarter ended June 30,
2017.
Adjusted Net Earnings means net earnings before interest
accretion, amortization of intangible assets resulting from
purchase price allocation following acquisitions, deferred income
taxes, stock-based compensation, restructuring, foreign exchange,
and certain other items.
Adjusted Net Earnings per Diluted Share means Adjusted Net
Earnings divided by Diluted Shares. Diluted Shares means the
weighted average number of common shares on a fully diluted basis,
including options, other equity-based awards, warrants and
convertible preferred shares. The effects of anti-dilutive
potential common shares are ignored in calculating Diluted Shares.
See note 9 to the 2017 Annual Financial Statements. For the three
months and year ended December 31,
2017, Diluted Shares equaled 206,807,485 and 203,707,589,
respectively. For the purposes of the full year 2018 financial
guidance provided in this release, Diluted Shares equals between
207,000,000 and 209,000,000 for the high and low ends of the
Adjusted Net Earnings per Diluted Share range, respectively.
To calculate revenue on a constant currency basis, The Stars
Group translated revenue for the three months and year ended
December 31, 2017 using the prior
year's monthly exchange rates for its local currencies other than
the U.S. dollar, which The Stars Group believes is a useful metric
that facilitates comparison to its historical performance.
For additional information on The Stars Group's non-IFRS
measures, see the 2017 Annual MD&A, including under the
headings "Management's Discussion and Analysis" and "Selected
Financial Information—Other Financial Information".
Key Metrics and Other Data
The Stars Group defines QAUs as active unique customers
(online, mobile and desktop client) who (i) made a deposit or
transferred funds into their real-money account with The Stars
Group at any time, and (ii) generated real-money rake or placed a
real-money bet or wager on or through one of its real-money online
poker, casino or sportsbook offerings during the applicable
quarterly period. The Stars Group defines unique as a customer who
played at least once on one of its real-money offerings during the
period, and excludes duplicate counting, even if that customer is
active across multiple verticals (poker, casino and/or
sportsbook). The definition of QAUs excludes customer
activity from certain low-stakes, non-raked real-money poker games,
but includes real-money activity by customers using funds (cash and
cash equivalents) deposited by The Stars Group into such customers'
previously funded accounts as promotions to increase their lifetime
value.
The Stars Group defines QNY as combined real-money online gaming
and related revenue (excluding certain other revenues, such as
revenues that are included in "other gaming" revenues) for its two
business lines (i.e., real-money online poker and real-money online
casino and sportsbook) as reported during the applicable quarterly
period (or as adjusted to the extent any accounting reallocations
are made in later periods) divided by the total QAUs during the
same period. The Stars Group provides QNY on a U.S. dollar and
constant currency basis. QNY is a non-IFRS measure.
The Stars Group defines Net Deposits as the aggregate of gross
deposits or transfer of funds made by customers into their
real-money online accounts less withdrawals or transfer of funds by
such customers from such accounts, in each case during the
applicable quarterly period. Gross deposits exclude (i) any
deposits, transfers or other payments made by such customers into
The Stars Group's play-money and social gaming offerings, and (ii)
any real-money funds (cash and cash equivalents) deposited by The
Stars Group into such customers' previously funded accounts as
promotions to increase their lifetime value.
The Stars Group defines Customer Registrations as the cumulative
number of online real-money and play-money customer registrations
on The Stars Group's brands.
For additional information on The Stars Group's key metrics and
other data, see the 2017 Annual MD&A, including under the
headings "Limitations of Key Metrics and Other Data" and "Key
Metrics".
THE STARS GROUP
INC. CONSOLIDATED STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
U.S.
dollars
|
|
2017
$000's
(except per
share
amounts)
|
|
2016
$000's
(except per
share
amounts)
|
|
2017
$000's
(except per
share
amounts)
|
|
2016
$000's
(except per
share
amounts)
|
Revenues
|
|
360,247
|
|
310,286
|
|
1,312,315
|
|
1,155,247
|
Expenses
|
|
|
|
|
|
|
|
|
Selling
|
|
67,251
|
|
45,505
|
|
192,709
|
|
162,785
|
General and
administrative
|
|
162,856
|
|
151,552
|
|
571,258
|
|
585,123
|
Financial
|
|
39,713
|
|
36,565
|
|
163,039
|
|
138,299
|
Gaming
duty
|
|
37,188
|
|
29,420
|
|
130,771
|
|
113,102
|
Acquisition-related
costs
|
|
—
|
|
—
|
|
—
|
|
199
|
Total
expenses
|
|
307,008
|
|
263,042
|
|
1,057,777
|
|
999,508
|
Gain (loss) from
investments
|
|
20,288
|
|
(4,728)
|
|
34,524
|
|
(19,278)
|
Net (loss) earnings
from associates
|
|
—
|
|
(21)
|
|
(2,569)
|
|
623
|
Gain on settlement of
deferred consideration
|
|
—
|
|
2,466
|
|
—
|
|
2,466
|
Net earnings
before income taxes
|
|
73,527
|
|
44,961
|
|
286,493
|
|
139,550
|
Income
taxes
|
|
26,352
|
|
(78)
|
|
27,208
|
|
4,000
|
Net
earnings
|
|
47,175
|
|
45,039
|
|
259,285
|
|
135,550
|
Net earnings
(loss) attributable to
|
|
|
|
|
|
|
|
|
Shareholders of The
Stars Group Inc.
|
|
47,244
|
|
45,191
|
|
259,231
|
|
136,144
|
Non-controlling
interest
|
|
(69)
|
|
(152)
|
|
54
|
|
(594)
|
Net
earnings
|
|
47,175
|
|
45,039
|
|
259,285
|
|
135,550
|
Basic earnings per
Common Share
|
|
$
|
0.32
|
|
$
|
0.31
|
|
$
|
1.77
|
|
$
|
0.96
|
Diluted earnings per
Common Share
|
|
$
|
0.23
|
|
$
|
0.23
|
|
$
|
1.27
|
|
$
|
0.70
|
THE STARS GROUP
INC. CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
|
|
|
|
|
|
As at
December 31,
|
|
|
2017
$000's
|
|
2016
$000's
|
U.S.
dollars
|
|
|
ASSETS
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents - operational
|
|
283,225
|
|
129,459
|
|
Cash and cash
equivalents - customer deposits
|
|
227,098
|
|
138,225
|
Total cash and cash
equivalents
|
|
510,323
|
|
267,684
|
Restricted cash
advances and collateral
|
|
7,862
|
|
5,767
|
|
Current
investments
|
|
—
|
|
59,977
|
|
Current investments -
customer deposits
|
|
122,668
|
|
228,510
|
Total current
investments
|
|
122,668
|
|
288,487
|
Accounts
receivable
|
|
100,409
|
|
81,557
|
Inventories
|
|
302
|
|
515
|
Prepaid expenses and
deposits
|
|
29,393
|
|
22,567
|
Assets held for
sale
|
|
—
|
|
6,972
|
Income tax
receivable
|
|
16,540
|
|
16,838
|
Derivatives
|
|
2,037
|
|
—
|
Total current
assets
|
|
789,534
|
|
690,387
|
Non-current
assets
|
|
|
|
|
Restricted cash
advances and collateral
|
|
45,834
|
|
45,728
|
Prepaid expenses and
deposits
|
|
16,514
|
|
20,798
|
Investments in
associates
|
|
—
|
|
—
|
Long-term accounts
receivable
|
|
11,818
|
|
9,458
|
Long-term
investments
|
|
6,981
|
|
6,921
|
Promissory
note
|
|
—
|
|
4,827
|
Property and
equipment
|
|
44,837
|
|
40,800
|
Investment tax
credits receivable
|
|
3,056
|
|
1,892
|
Income tax
receivable
|
|
14,061
|
|
—
|
Deferred income
taxes
|
|
5,141
|
|
1,054
|
Derivatives
|
|
—
|
|
52,038
|
Goodwill and
intangible assets
|
|
4,477,350
|
|
4,588,572
|
Total non-current
assets
|
|
4,625,592
|
|
4,772,088
|
Total
assets
|
|
5,415,126
|
|
5,462,475
|
LIABILITIES
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
151,473
|
|
135,777
|
Other
payables
|
|
42,714
|
|
56,588
|
Provisions
|
|
17,590
|
|
212,780
|
Customer
deposits
|
|
349,766
|
|
366,735
|
Income tax
payable
|
|
35,941
|
|
23,616
|
Current maturity of
long-term debt
|
|
4,990
|
|
47,750
|
Derivatives
|
|
—
|
|
4,922
|
Total current
liabilities
|
|
602,474
|
|
848,168
|
Non-current
liabilities
|
|
|
|
|
Long-term
debt
|
|
2,353,579
|
|
2,380,829
|
Provisions
|
|
3,093
|
|
8,942
|
Derivatives
|
|
111,762
|
|
5,594
|
Income tax
payable
|
|
24,277
|
|
—
|
Deferred income
taxes
|
|
16,510
|
|
17,214
|
Total non-current
liabilities
|
|
2,509,221
|
|
2,412,579
|
Total
liabilities
|
|
3,111,695
|
|
3,260,747
|
EQUITY
|
|
|
|
|
Share
capital
|
|
1,884,219
|
|
1,862,789
|
Reserves
|
|
(142,340)
|
|
35,847
|
Retained
earnings
|
|
561,519
|
|
302,288
|
Equity
attributable to the Shareholders of The Stars Group
Inc.
|
|
2,303,398
|
|
2,200,924
|
Non-controlling
interest
|
|
33
|
|
804
|
Total
equity
|
|
2,303,431
|
|
2,201,728
|
Total liabilities
and equity
|
|
5,415,126
|
|
5,462,475
|
THE STARS GROUP
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2017
$000's
|
|
2016
$000's
|
U.S.
dollars
|
|
|
Operating
activities
|
|
|
|
|
Net
earnings
|
|
259,285
|
|
135,550
|
Dormant accounts
recognized as income
|
|
1,596
|
|
(9,160)
|
Stock-based
compensation
|
|
10,622
|
|
10,289
|
Interest
accretion
|
|
40,373
|
|
36,433
|
Interest
expense
|
|
116,469
|
|
130,848
|
Income tax expense
recognized in net earnings
|
|
27,208
|
|
4,000
|
Depreciation of
property and equipment
|
|
8,925
|
|
8,181
|
Amortization of
intangible assets
|
|
127,986
|
|
125,760
|
Amortization of
deferred development costs
|
|
10,275
|
|
5,942
|
Unrealized gain on
foreign exchange
|
|
(10,324)
|
|
(17,571)
|
Unrealized (gain)
loss on investments
|
|
(170)
|
|
6,703
|
(Reversal of)
Impairment of assets held for sale, associates and intangible
assets
|
|
(6,799)
|
|
16,931
|
Net loss (earnings)
from associates
|
|
2,569
|
|
(623)
|
Gain on settlement of
deferred consideration
|
|
(44)
|
|
(2,466)
|
Realized (gain) loss
on current investments, promissory note and other
|
|
(50,038)
|
|
2,906
|
Income taxes
paid
|
|
(9,357)
|
|
(1,699)
|
Changes in non-cash
operating elements of working capital
|
|
(3,801)
|
|
(32,019)
|
Customer deposit
liability movement
|
|
(30,924)
|
|
(70,992)
|
Other
|
|
749
|
|
923
|
Net cash inflows
from operating activities
|
|
494,600
|
|
349,936
|
Financing
activities
|
|
|
|
|
Issuance of common
shares in relation to exercised warrants
|
|
—
|
|
1,192
|
Issuance of common
shares in relation to exercised employee stock options
|
|
16,665
|
|
921
|
Settlement of
brokerage margin account
|
|
(7,602)
|
|
—
|
Payment of deferred
consideration
|
|
(197,510)
|
|
(200,000)
|
Repayment of
long-term debt
|
|
(139,913)
|
|
(46,353)
|
Transaction costs on
repricing of long-term debt
|
|
(4,719)
|
|
—
|
Interest
paid
|
|
(124,627)
|
|
(131,346)
|
Gain on settlement of
derivative
|
|
13,904
|
|
—
|
Net cash outflows
from financing activities
|
|
(443,802)
|
|
(375,586)
|
Investing
activities
|
|
|
|
|
Additions in deferred
development costs
|
|
(23,212)
|
|
(20,961)
|
Purchase of property
and equipment
|
|
(10,997)
|
|
(6,806)
|
Acquired intangible
assets
|
|
(1,893)
|
|
(7,669)
|
Sale (purchase) of
investments
|
|
88,760
|
|
(5,722)
|
Cash movement (into)
from restricted cash advances and collateral
|
|
(1,298)
|
|
66,969
|
Settlement of minimum
revenue guarantee
|
|
(9,311)
|
|
(16,070)
|
Settlement of
promissory note
|
|
8,084
|
|
—
|
Net sale of
investments utilizing customer deposits
|
|
117,106
|
|
22,679
|
Acquisition of
further interests in subsidiary
|
|
(6,516)
|
|
(3,549)
|
Investment in
associate
|
|
(2,000)
|
|
—
|
Proceeds on disposal
of interest in associate classified as held for sale
|
|
16,127
|
|
—
|
Net cash inflows
from investing activities
|
|
174,850
|
|
28,871
|
Increase in cash and
cash equivalents
|
|
225,648
|
|
3,221
|
Cash and cash
equivalents – beginning of period
|
|
267,684
|
|
274,359
|
Unrealized foreign
exchange difference on cash and cash equivalents
|
|
16,991
|
|
(9,896)
|
Cash and cash
equivalents - end of period
|
|
510,323
|
|
267,684
|
SOURCE The Stars Group Inc.