The Stars Group Reports Third Quarter 2018 Results

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

• Total Revenues – Revenues for the quarter increased 73.6% year-over-year primarily as a result of the contribution of revenue from the acquisitions of Sky Betting & Gaming ("SBG") and BetEasy, as well as organic growth in the International segment.
  
  
• Adjusted EBITDA and Adjusted EBITDA Margin – Adjusted EBITDA for the quarter increased 27.3% year-over-year, primarily driven by the impact of the acquisitions of SBG and BetEasy and by increased gross profit from organic growth within the International segment. Adjusted EBITDA Margin for the quarter decreased 26.7% year-over-year, primarily driven by the higher contribution from the Betting and Gaming verticals within each segment.
  
  
• Consolidated Debt and Cash – The total principal amount owing on long-term debt outstanding at the end of the quarter was $5.65 billion with a carrying value of $5.52 billion. The Stars Group ended the third quarter of 2018 with approximately $419 million in operational cash on its balance sheet, which translated into Net Debt of $5.1 billion. Subsequent to the quarter end, on October 24, 2018, The Stars Group fully repaid the $100 million outstanding on its revolving credit facility using cash on its balance sheet.
  
  
• U.S. Sports Betting Update – On August 10, 2018, The Stars Group and Mount Airy Casino Resort announced a partnership to enter Pennsylvania's online sports wagering and gaming market, where The Stars Group will offer to customers in Pennsylvania its online poker, casino (including slots and tables) and sports wagering products. On September 13, 2018, The Stars Group launched its BetStars online sports betting brand in New Jersey through its partnership with Resorts Casino Hotel. The offering, which is initially available through mobile, provides New Jersey customers with an innovative and robust mobile-led sportsbook alongside The Stars Group's already existing online poker and casino offerings available through the PokerStarsNJ and PokerStars Casino NJ brands.
  
  
• Sky Betting & Gaming Update – On July 10, 2018, The Stars Group completed the previously announced Sky Betting & Gaming acquisition for $4.7 billion, and on October 11, 2018, the UK Competition & Markets Authority cleared the acquisition, allowing The Stars Group to begin executing on its integration plans. As it relates to the previously announced expected synergies of at least $70 million, The Stars Group currently believes that approximately 53% will relate to headcount and other staff costs, 23% to purchasing costs and 24% to other cost savings. In addition, The Stars Group currently estimates that it may achieve approximately $5 million of such synergies before year end, followed by a further $50 million in 2019 and an additional $15 million in 2020. The Stars Group continues to expect approximately $85 million in implementation costs to achieve those synergies, with the majority of such costs being incurred in 2019.

International

• Poker – Poker revenue for the quarter was $212.8 million, or a decrease of approximately 3.9% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, Poker revenues for the quarter would have increased by 0.3%. The reported decrease was primarily driven by foreign exchange fluctuations, the cessation of operations in certain markets, notably Australia in September 2017, and cross selling to other verticals (particularly during the FIFA World Cup), and offset by, among other things, the Stars Rewards loyalty program (introduced during the quarter ended September 30, 2017) and the introduction of shared poker liquidity in France and Spain in the first quarter and Portugal in the second quarter.
  
  
• Gaming – Gaming revenue for the quarter was $107.6 million, or an increase of 28.9% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, Gaming revenues for the quarter would have increased by 32.5%. The reported increase was primarily the result of product and content improvements to PokerStars Casino, including the introduction of over 250 new casino games since the beginning of the year and the launch of PokerStars Casino in certain new markets. This was partially offset by, among other things, the impact of year-over-year changes in foreign exchange rates.
  
  
• Betting – Betting revenue for the quarter was $21.0 million, or an increase of 79.9% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, Betting revenues for the quarter would have increased by 86.5%. The reported increase was primarily the result of increases in Stakes and Betting Net Win Margin. These increases were primarily driven by increased wagering activity due to product and content improvements to BetStars, the launch of BetStars in certain new markets, and the 2018 FIFA World Cup.
  
  
• Adjusted EBITDA and Adjusted EBITDA Margin – Adjusted EBITDA for the quarter increased 11.9% year-over-year, primarily driven by increased revenue and gross profit across all segments as noted above. Adjusted EBITDA Margin for the quarter increased 4.6% year-over-year, primarily driven by increased revenues combined with operational leverage from additional product and content improvements and a decline in sales and marketing expenses in the quarter.
  
  
• Quarterly Real-Money Active Uniques (QAUs) – QAUs were 2.0 million, which represents a decrease of 3.1% year-over-year. This decrease was primarily the result of the cessation of real-money online poker operations in certain markets, notably Australia in September 2017, and The Stars Group's continued strategy of focusing on high-value customers (primarily recreational players), as offset by the growth and expansion of the real-money casino and betting product offerings.
  
  
• Quarterly Net Yield (QNY) – QNY was $167, an increase of 11.3% year-over-year, and QNY excluding the impact of year-over-year changes in foreign exchange rates was $174, an increase of 16.0% year-over-year. QNY is a non-IFRS measure.
  
  
• Net Deposits – Net Deposits were $335 million, an increase of 4.1% year-over-year. The increase was primarily driven by the implementation of the Stars Rewards loyalty program and continued focus on high-value customers (primarily recreational players), foreign exchange fluctuations and continued development of the casino and betting product offerings.
  
  
• Stakes and Betting Net Win Margin – Stakes were $233.7 million, an increase of 42.6% year-over-year, and Betting Net Win Margin was 9.0%, an increase of 1.9 percentage points year-over-year. The increases in the quarter were primarily due to product and content improvements to BetStars driving incremental QAUs, the launch of BetStars in certain new markets, and the World Cup. The Betting Net Win Margin for the International segment is less exposed to the English Premier League and UK horse racing, and as such, was not impacted to the same extent by the operator-unfavorable results The Stars Group experienced within the United Kingdom segment as a whole.

United Kingdom

• Revenue, Adjusted EBITDA and Adjusted EBITDA Margin – Revenue from July 10, 2018 through the end of the quarter ended September 30, 2018, was $168.4 million. Adjusted EBITDA and Adjusted EBITDA Margin for the same period were $27.9 million and 16.6%, respectively. Revenue for the period was primarily impacted by low Betting Net Win Margin when compared to