The Stars Group Reports Third Quarter 2018 Results

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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.


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41.40% Net earnings 75,874 12,523 505.90% 212,110 90,511 134.30% Adjusted Net Earnings 119,595 84,979 40.70% 346,990 259,686 33.60% Diluted earnings per common share $ 0.37 $ 0.06 516.70% $ 1.05 $ 0.47 123.40% Adjusted Net Earnings per Diluted Share $ 0.58 $ 0.42 38.10% $ 1.71 $ 1.34 27.60%

(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

Third Quarter 2017 and Subsequent Operational Highlights

Full Year Guidance

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 — — — 199
Net loss (earnings) from associates and (reversal of) impairment of assets held for sale, associates and intangible assets 1,451 574 (5,861) 6,641
Other costs (see table below) 2,616 8,651 15,059 32,039
Adjusted EBITDA 155,767 123,164 453,305 376,489
Current income tax expense (3,288) (342) (6,690) (5,814)
Depreciation and amortization (excluding amortization of purchase price allocation intangibles) (5,556) (4,369) (15,740) (12,359)
Interest (excluding interest accretion and non-refundable late payment fees related to the unpaid balance of the deferred purchase price) (27,328) (33,474) (83,885) (98,630)
Adjusted Net Earnings 119,595 84,979 346,990 259,686
Diluted Shares 204,800,009 200,016,913 202,796,952 193,866,395
Adjusted Net Earnings per Diluted Share $0.58 $0.42 $1.71 $1.34

The table below presents certain items comprising “Other costs” in the reconciliation table above:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
$000's $000's $000's $000's
Non-U.S. lobbying and legal expenses 797 476 2,622 2,300
U.S. lobbying and legal expenses 2,119 2,336 9,612 9,163
Strategic review professional fees — 2,237 125 7,372
Retention bonuses 41 437 1,271 2,657
Non-recurring professional fees 664 413 2,168 4,833
AMF and other investigation professional fees (net of insurance proceeds) (1,265) 2,587 3,888 4,492
Austria gaming duty — — (5,000) —
Office restructuring and legacy business 260 165 373 1,222
unit shutdown costs
Other costs 2,616 8,651 15,059 32,039

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 September 30, Nine Months Ended September 30,
2017 2016 2017 2016
$000's $000's $000's $000's
Net cash inflows from operating activities 144,870 86,693 370,843 201,641
Customer deposit liability movement (2,884) (1,717) 22,398 76,481
Adjusted Cash Flow from Operations 141,986 84,976 393,241 278,122

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., total 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 September,
2017 2016
$000's $000's
Total revenue 329,443 270,681
Corporate revenue (213) —
Other gaming revenue (12,675) (9,632)
Real-money online poker revenue and real-money online casino 316,555 261,049
and sportsbook combined revenue

The Stars Group has not provided a reconciliation of the non-IFRS measures to the nearest IFRS measures included in its full year 2017 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 Q3 2017 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. Through its Stars Interactive Group division, The Stars Group ultimately owns gaming and related consumer businesses and brands, including PokerStars, PokerStars Casino, BetStars, Full Tilt, StarsDraft, and the PokerStars Championship, PokerStars Festival and PokerStars Megastack live poker tour brands (incorporating aspects of the European Poker Tour, PokerStars Caribbean Adventure, Latin American Poker Tour and the Asia Pacific Poker Tour). These brands together have more than 115 million 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 brands, also offers non-poker gaming products, including casino, sportsbook and daily fantasy sports. 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, 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 2017 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” 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 us, our subsidiaries, and our 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 with respect to interactive entertainment or online and mobile 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 distribute 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