The Stars Group Provides First Quarter and General Business Update

TORONTO, April 17, 2020 /PRNewswire/ -- The Stars Group Inc. (NASDAQ: TSG) (TSX: TSGI) today provided a general business update, including  expectations for its financial results for the first quarter of 2020.

"We saw record revenues in the first quarter with 27% year-over-year growth and are continuing to see strong momentum into April, with strong growth in poker and gaming revenues helping to mitigate the cancellation of sporting events. With these encouraging trends, a well-diversified and cash-generative business, and our strong balance sheet, we believe that we remain well-positioned to navigate further headwinds related to the COVID-19 pandemic in 2020, and remain fully committed to our combination with Flutter, which we now expect to close in the second quarter and are confident will enhance and accelerate our growth strategy," said Rafi Ashkenazi, Chief Executive Officer of The Stars Group. "During these exceptional times, our top priority, however, is the health and safety of our employees and customers, which includes enhancing our responsible and safer gambling measures as well as ensuring that we provide our customers with all the help and support they may need." 

Revenue - The Stars Group saw strong momentum across its segments since the start of 2020, and now expects record revenues for the first quarter of 2020 of approximately $735 million, an increase of approximately 27% as compared to $580 million in the first quarter of 2019. This performance was supported by continued strong underlying momentum in customer activity in the United Kingdom and Australia segments, a sequential improvement in the International segment, and a year-over-year increase in Betting Net Win Margin at approximately 12.1% compared to 6.1% in the first quarter of 2019. Additional segment specific factors impacting revenue are described below.

COVID-19 Impact - The Stars Group saw increased customer activity across its online poker and casino product offerings largely beginning in March, with year-over-year International revenue growth of approximately 44% for the month, which more than mitigated the disruption from the cancellation or postponement of sporting events during that time. The Stars Group has continued to see increased activity in online poker and casino into the second quarter of 2020, with consolidated average daily revenues in the first two weeks of the quarter approximately 33% higher as compared to the first quarter of 2020. On the same basis, International revenues were approximately 75% higher, benefiting from increased activity in online poker and casino, and United Kingdom revenues were approximately 30% lower, with growth in gaming partly mitigating a reduction of approximately 65% in Stakes. In the Australian segment, as racing has continued with minimal disruption, the growth in racing revenues fully mitigated the loss of sports revenues in this short period.

If the COVID-19 pandemic continues for a prolonged period causing continued global macro-economic uncertainty, it is possible that consumer spending across The Stars Group's product offerings may also become adversely impacted. Similarly, the return of sporting events earlier than currently anticipated could benefit The Stars Group's sports betting revenues, but could negatively impact the current increased activity across its online poker and casino products.

However, the operating environment is evolving rapidly, and it remains difficult for The Stars Group to predict the scope, timing and length of the current COVID-19 pandemic and related restrictions and sports postponements and cancellations, and the impact that this will have on The Stars Group's business for the remainder of 2020. The Stars Group currently estimates that each month that horse and dog racing and major sporting events are cancelled would reduce operating income by approximately £10 to £15 million in the United Kingdom segment and by up to A$10 million in the Australian segment, with no material negative impact on the International segment.

Commitment to Safer Gambling - A key area of focus for The Stars Group, particularly during this unprecedented time, has been to enable customers to enjoy its games in a safe and fair manner. To this end, The Stars Group has further increased its investment and focus into its safer and responsible gambling measures by, among other initiatives, encouraging customers to take advantage of its various safer gambling tools, such as setting deposit limits, using cool-off periods and using "reality checks" where available. In addition to encouraging customers to monitor and control their own activity, The Stars Group strives to intervene where customer data suggests a heightened risk of harm, setting mandatory deposit limits or otherwise restricting gameplay. The Stars Group is also supporting its range of free-to-play games for customers to enjoy during these challenging times.

Debt and Cash - The Stars Group continues to maintain a strong liquidity position and healthy balance sheet. As previously disclosed, The Stars Group prepaid an additional $100 million of its USD first lien term loan in February 2020. As of March 31, 2020, The Stars Group had cash and cash equivalents of $285 million. In addition, The Stars Group has access to its revolving credit facility, among other potential sources of liquidity, that together with its current cash and cash equivalents continues to provide approximately $1 billion of liquidity.

U.S. Update - The Stars Group currently operates its FOX Bet real-money wagering products and PokerStars-branded real-money poker and casino products in New Jersey and Pennsylvania, and since the launch of FOX Bet in New Jersey and Pennsylvania in 2019, the performance has been in-line with The Stars Group's expectations, with an expected loss of approximately $15 million in the first quarter of 2020, as it continues to build its active customers and revenues. With limited sporting events during March and consistent with the trends seen in the International segment during this time, The Stars Group saw increased customer activity across its online poker and casino products, which has so far similarly continued into April, and as such, has also shifted most of its marketing efforts to support PokerStars, including the first Spring Championship of Online Poker (SCOOP) taking place in April in New Jersey and Pennsylvania, with a guaranteed prize pool of $2 million in Pennsylvania. As it relates to new markets, The Stars Group recently received applicable operating approvals in both Colorado and West Virginia and expects to launch sports betting in those states in due course. 

Combination with Flutter Entertainment plc - Last week, two independent proxy advisory firms, Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co., each recommended that shareholders vote FOR the proposed all-share combination with Flutter at the upcoming special meeting of The Stars Group shareholders, which will now be held virtually on April 24, 2020 at 10:00 a.m. EDT. At the end of March, the UK Competition & Markets Authority also announced that it had unconditionally cleared the combination with Flutter Entertainment plc following its Phase 1 review under the Enterprise Act 2002. The Stars Group currently expects closing of the combination to occur during the second quarter of 2020 subject to, among other things, shareholder and remaining regulatory approvals.

International Segment Revenue - The Stars Group saw a sequential improvement in its International segment during the quarter, and currently expects first quarter revenues of approximately $378 million, representing year-over-year growth of approximately 11% compared to $341 million in the first quarter of 2019. During 2019, revenue was negatively impacted by disruptions and regulatory headwinds in certain markets due to local restrictions on some methods of payment processing and on certain methods of downloading The Stars Group's products, particularly related to casino and poker. During the first quarter of 2020, The Stars Group began to see a reduction in the impact of such disruption, with revenue growth driven by underlying growth in customer activity, as well as its continued expansion into new jurisdictions, including the United States. During March and largely following the "stay at home" and similar restrictions implemented by various local and national authorities as a result of COVID-19, The Stars Group saw increased customer activity in its online poker and casino games, particularly through the reactivation of former customers, driving revenue growth of approximately 44% year-over-year for the month.

United Kingdom Segment Revenue - The Stars Group saw strong underlying momentum in its United Kingdom segment in the first quarter, and currently expects first quarter revenues of approximately $297 million, representing year-over-year growth of approximately 66% compared to $179 million in the first quarter of 2019. Revenue increased significantly for the quarter primarily due to strong operational momentum across the United Kingdom segment's betting and gaming products and a significantly higher Betting Net Win Margin of approximately 14.9% compared to 5.0% in the prior year period, which was negatively impacted by operator unfavorable sports results and the previously disclosed planned investment in promotional activity for the Cheltenham Festival. Stakes for the quarter were approximately 18% lower than seen in the first quarter of 2019, with a significant reduction in the last two weeks of March due to the impact of sporting event cancellations.

Australia Segment Revenue - The Stars Group saw continued underlying momentum in its Australia segment in the first quarter, and currently expects first quarter revenues of approximately $61 million, representing a year-over-year decline of approximately 2% compared to $62 million in the first quarter of 2019. Constant Currency Revenue increased by approximately 6%, with underlying growth more than offset by negative foreign exchange fluctuations. Year-over-year growth in Stakes of approximately 5% on a local currency basis was primarily due to the continued success of BetEasy's promotional strategies in engaging customers, while the Betting Net Win Margin of approximately 8.1% was broadly stable relative to the prior year period, with targeted, personalized promotions directed at growing Stakes per customer.

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¹  The financial and operational information presented in this news release represents The Stars Group's current estimates as it relates to the anticipated performance of its reporting segments and on a consolidated basis for the first quarter of 2020 and the first two weeks of the second quarter of 2020, as applicable. These estimated anticipated results are based solely on information available to The Stars Group as of the date of this news release, do not include certain accounting determinations that remain on-going, have not been reviewed by The Stars Group's independent auditor, and are subject to change.

²  Non-IFRS measure. For important information on The Stars Group's non-IFRS measures, please see below under "Non-IFRS Measures" and the tables under "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures".

³  Weighted average common shares outstanding used for the calculation of diluted net (loss) earnings per common share and Adjusted Diluted Net Earnings per Share for the first quarter of 2020 was approximately 289 million and 292 million, respectively, compared  to approximately 274 million for both calculations for the prior year period. Diluted net loss per common share for the first quarter of 2020 was impacted as all potentially dilutive securities of The Stars Group (i.e., securities exercisable or convertible into common shares or equity-based awards that can be settled into common shares) were not included in the weighted average common share amount because the exercise, conversion or settlement of such securities would be anti-dilutive.

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 operating income (loss), which is the nearest IFRS measure.

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¹  With respect to the relevant adjusting items for the first quarter of 2019 (excluding "Other costs"), see the Adjusted EBITDA reconciliation in the news release issued by The Stars Group on May 15, 2019, under the heading "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures". With respect to 2020, The Stars Group currently expects to incur and adjust for substantially similar items as it did in the 2019 period as well as acquisition related costs associated the proposed combination with Flutter.

²  With respect to the first quarter of 2019, see the table in the news release issued by The Stars Group on May 15, 2019, under the heading "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures" which presents certain items comprising "Other costs". With respect to 2020, The Stars Group currently expects to incur and adjust for substantially similar costs as it did in the 2019 period.

³  "Depreciation and amortization" means total depreciation and amortization, excluding amortization of acquisition intangibles, which is not adjusted for in this measure.

⁴  "Interest" means total net financing charges, including interest on long term debt and other interest (income) expense but excluding interest accretion, ineffectiveness on cash flow hedges, re-measurement of deferred contingent consideration, and re-measurement of embedded derivatives, each of which is not adjusted for in this measure.

⁵  "Taxes" means total income tax expense, excluding the impact o