EX-99.1 2 tsgi-prq22019exhibit991.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

thestarsgroupstackeda01.jpg
The Stars Group Reports Second Quarter 2019 Results; Updates 2019 Full Year Guidance; Appoints New Independent Director

TORONTO, August 12, 2019 – The Stars Group Inc. (NASDAQ: TSG)(TSX: TSGI) today reported its financial results for the second quarter ended June 30, 2019, provided updated 2019 full year guidance ranges, announced the appointment of an additional independent director to its Board of Directors, and provided certain additional highlights and updates. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

“The second quarter underpinned the success of last year's acquisitions, particularly with the record performance of Sky Betting & Gaming and our increasing product and geographic diversification, as we continue to transform and position the business to execute on our strategy for strong, sustainable future growth,” said Rafi Ashkenazi, The Stars Group’s Chief Executive Officer.

“2019 has been and remains a year of integration, execution and debt reduction,” said Mr. Ashkenazi. “We are committed to those key strategic priorities for the rest of the year while we also build our foundation and momentum to become a market leader in the U.S. We are confident that the actions we have taken over the last year, and are pursuing now, including to reassess our fixed cost base, put us in a strong position to deliver our mid-term growth targets from the end of 2019,” concluded Mr. Ashkenazi.

Second Quarter 2019 Summary

Consolidated
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In thousands of U.S. Dollars
(except percentages and per share amounts)
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Total revenue
 
637,618

 
411,512

 
54.9
 %
 
1,218,002

 
804,403

 
51.4
 %
Gross profit (excluding depreciation and amortization)
 
463,708

 
327,875

 
41.4
 %
 
881,456

 
640,502

 
37.6
 %
Operating income
 
93,955

 
1,064

 
8,730.4
 %
 
155,492

 
114,931

 
35.3
 %
Net earnings (loss)
 
4,629

 
(154,824
)
 
103.0
 %
 
32,287

 
(80,463
)
 
140.1
 %
Adjusted Net Earnings ¹
 
137,469

 
131,023

 
4.9
 %
 
243,069

 
269,785

 
(9.9
)%
Adjusted EBITDA ¹
 
236,734

 
168,271

 
40.7
 %
 
432,089

 
343,293

 
25.9
 %
Adjusted EBITDA Margin ¹
 
37.1
%
 
40.9
%
 
(9.3
)%
 
35.5
%
 
42.7
%
 
(16.9
)%
Diluted earnings (loss) per Common Share ($/Share)
 
0.02

 
(1.01
)
 
101.7
 %
 
0.12

 
(0.52
)
 
122.6
 %
Adjusted Diluted Net Earnings per Share ($/Share) ¹
 
0.48

 
0.60

 
(19.4
)%
 
0.87

 
1.27

 
(31.6
)%

 

 
 
 

 
 
 
 
 
 
Net cash inflows from operating activities
 
173,208

 
164,011

 
5.6
 %
 
283,593

 
296,080

 
(4.2
)%
Free Cash Flow ¹
 
84,820

 
84,856

 
—
 %
 
47,307

 
167,115

 
(71.7
)%
As at
 
June 30, 2019
 
December 31, 2018
 
% Change
Long-term debt - principal
 
5,195,398

 
5,666,075

 
(8.3
)%
Long-term debt - carrying value
 
5,088,915

 
5,446,958

 
(6.6
)%
Cash - operational
 
339,239

 
392,853

 
(13.6
)%
_____________________________
1 
Non-IFRS measure. For important information on The Stars Group’s non-IFRS measures, see below under “Non-IFRS Measures” and the tables under “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”.



•
Revenue – Revenue for the quarter increased primarily as a result of the contribution from Sky Betting & Gaming, which The Stars Group acquired in July 2018. During the quarter, online sports betting was The Stars Group’s largest product vertical (36% versus 20% in 2018), followed by online casino (31% versus 25% in 2018) and online poker (30% versus 53% in 2018), while 79% of consolidated revenues were derived from locally regulated or taxed markets (61% in 2018). Additional segment specific factors impacting revenue are described below.

•
Debt and Cash – During the quarter, The Stars Group prepaid $250 million outstanding on its USD first lien term loan, and ended the quarter with approximately $339.2 million in operational cash and $5.1 billion of debt on its balance sheet, resulting in Net Debt of $4.7 billion.

•
FOX Bet – In May, The Stars Group and FOX Sports announced plans to launch FOX Bet, the first-of-its kind national media and sports wagering partnership in the United States. In addition to a commercial agreement of up to 25 years and associated product launches, including real-money and free-to-play games, FOX also acquired 4.99% of The Stars Group’s then-issued and outstanding common shares for aggregate proceeds of $236.0 million. FOX Bet currently remains on track to launch in applicable states prior to the start of the NFL season.

•
U.S. Market Access Update – In July, The Stars Group announced agreements with Penn National Gaming and the Akwesasne Mohawk Casino Resort in New York, providing market access for online betting and gaming in up to ten states and extending The Stars Group’s aggregate market access to up to 20 states, subject to license availability, state law and regulatory approvals.

•
Appointment of Independent Director – The Board appointed John Schappert, effective August 12, 2019, as a new independent director and member of the Board’s Compensation and Technology Committees.  Mr. Schappert, 49, has served as the Chairman and Chief Executive Officer of Shiver Entertainment, a private company that develops video game software for consoles (PlayStation 4, Xbox One, Nintendo Switch), PC, and mobile phones and tablets, since 2012. Mr. Schappert also currently serves as the Chairman of Motorsport Games, a private company that develops and publishes video games, and Pipeworks Studios, a private company that develops video games and software, since 2019 and 2018, respectively. Prior to this, Mr. Schappert served as the Chief Operating Officer for Zynga Inc. (Nasdaq: ZNGA) from 2011 to 2012 and served on its board of directors during that time. Mr. Schappert also previously served as the Chief Operating Officer for Electronic Arts Inc. (Nasdaq: EA) from 2009 to 2011, and was Corporate Vice President of Microsoft Corporation’s (Nasdaq: MSFT) Interactive Entertainment Business unit from 2007 to 2009. From 1998 until 2007, Mr. Schappert held several positions for various divisions of EA, including Vice President and General Manager of Electronic Arts Tiburon from 1998 until 2002, Senior Vice President and Group General Manager of Electronic Arts Canada from 2002 until 2006, and Executive Vice President and Chief Operating Officer of Worldwide Studios from 2006 until 2007. Mr. Schappert founded Tiburon Entertainment, the developer of the Madden NFL video game franchise, in 1994 and served as President and Chief Executive Officer until 1998, when it was acquired by EA. From 1991 until 1994, Mr. Schappert was a software engineer and game developer for Visual Concepts. Mr. Schappert earned an Associates of Arts degree from Miami Dade Community College in Miami, Florida.

•
Technology Committee of the Board – On August 8, 2019, the Board established a standing Technology Committee of independent directors, which will have certain oversight and monitoring responsibilities with respect to technology-related risks and the overall role of technology in executing The Stars Group’s business strategy. The Technology Committee is currently comprised of Eugene Roman, John Schappert and Mary Turner, with Mr. Roman serving as the chair.
.


International
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In thousands of U.S. Dollars (except otherwise noted)
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Stakes
 
249,276

 
248,572

 
0.3
 %
 
524,535

 
471,557

 
11.2
 %
Betting Net Win Margin (%)
 
7.3
%
 
7.9
%
 
(7.6
)%
 
7.3
%
 
7.7
%
 
(5.2
)%
 
 

 
 
 

 

 
 
 

Revenue
 

 
 
 

 

 
 
 

Poker
 
191,496

 
216,986

 
(11.7
)%
 
405,645

 
462,856

 
(12.4
)%
Poker Constant Currency Revenue
 
201,830

 
216,986

 
(7.0
)%
 
436,686

 
462,856

 
(5.7
)%
Gaming
 
104,300

 
101,941

 
2.3
 %
 
203,208

 
208,651

 
(2.6
)%
Gaming Constant Currency Revenue
 
111,058

 
101,941

 
8.9
 %
 
219,170

 
208,651

 
5.0
 %
Betting
 
18,284

 
19,635

 
(6.9
)%
 
38,333

 
36,321

 
5.5
 %
Betting Constant Currency Revenue
 
18,425

 
19,635

 
(6.2
)%
 
40,330

 
36,321

 
11.0
 %
Other
 
7,792

 
11,673

 
(33.2
)%
 
15,299

 
24,173

 
(36.7
)%
Other Constant Currency Revenue
 
10,126

 
11,673

 
(13.3
)%
 
18,299

 
24,173

 
(24.3
)%
Total revenue
 
321,872


350,235

 
(8.1
)%
 
662,485


732,001

 
(9.5
)%
Constant Currency Revenue
 
341,439

 
350,235

 
(2.5
)%
 
714,485

 
732,001

 
(2.4
)%
 
 

 
 
 

 

 
 
 

QAUs (millions)
 
1.9

 
2.0

 
(4.9
)%
 
 
 
 
 
 
QNY ($/QAU)
 
163

 
167

 
(2.4
)%
 
 
 
 
 
 
Constant Currency Revenue QNY
 
172

 
167

 
2.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit (excluding depreciation and amortization)
 
248,911

 
281,076

 
(11.4
)%
 
509,353

 
585,922

 
(13.1
)%
Gross profit margin (%)
 
77.3
%
 
80.3
%
 
(3.7
)%
 
76.9
%
 
80.0
%
 
(3.9
)%
 
 

 
 
 

 

 
 
 

General and administrative
 
107,259

 
106,447

 
0.8
 %
 
206,234

 
211,667

 
(2.6
)%
Sales and marketing ¹
 
36,863

 
42,255

 
(12.8
)%
 
77,145

 
87,224

 
(11.6
)%
Research and development
 
9,287

 
8,358

 
11.1
 %
 
15,889

 
16,177

 
(1.8
)%
Operating income
 
95,502

 
124,016

 
(23.0
)%
 
210,085

 
270,854

 
(22.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA 2
 
143,223

 
164,467

 
(12.9
)%
 
302,563

 
350,874

 
(13.8
)%
Adjusted EBITDA Margin (%) 2
 
44.5
%
 
46.9
%
 
(5.1
)%
 
45.7
%
 
47.9
%
 
(4.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Deposits (millions)
 
307

 
322

 
(4.7
)%
 
 
 
 
 
 
_____________________________
1 Sales and marketing includes $1.2 million and $2.7 million for the three and six months ended June 30, 2019, respectively, that the Corporation excluded from its consolidated results as it related to certain non-gaming related transactions with the United Kingdom segment.
2 Non-IFRS measure. For important information on The Stars Group’s non-IFRS measures, see below under “Non-IFRS Measures” and the tables under “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”.

•
Poker – Poker revenue for the quarter decreased year-over-year primarily as a result of adverse foreign exchange fluctuations and continued disruptions and regulatory headwinds in certain markets, including reduced deposits by customers as a result of local restrictions on some methods of payment processing and on certain methods of downloading The Stars Group’s poker applications, which was partially offset by continued organic growth in most other markets.

•
Gaming – Gaming revenue for the quarter increased year-over-year primarily as a result of organic growth in most markets, but was adversely impacted by foreign exchange fluctuations. Organic growth from recently launched products, including "Spin of the Day" and the continued roll-out of new casino games, more than offset the impact of exited markets, notably Switzerland (gaming and betting) and Slovakia (gaming, betting and poker) during the first quarter, and regulatory disruptions in certain markets, including local restrictions on some methods of payment processing.



•
Betting – Betting revenues for the quarter decreased year-over-year primarily as a result of a lower Betting Net Win Margin and adverse foreign exchange fluctuations. Stakes, however, were stable year-over-year with underlying growth offset by the positive impact of the FIFA World Cup in the prior year period and adverse foreign exchange fluctuations.
 
•
Customers – QAUs decreased primarily due to reduced activity in certain markets and the closure of certain markets, each as noted above.

•
International Senior Management Appointments – In July, The Stars Group appointed Gino Appiotti as President of the International segment, having previously served as its Managing Director of Poker. Mr. Appiotti has served The Stars Group in various senior capacities since 2011 and will report to Mr. Ashkenazi. In addition, Severin Rasset was appointed Managing Director & Commercial Officer of Poker, previously serving as Director of Poker Innovation and Operations, and Asaf Noifeld was appointed Managing Director of Casino, previously serving as Director of Casino Product, Innovation and Operations, and succeeding Bo Wanghammar, who will assume a new, broader strategic advisor role to the International segment.

United Kingdom
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In thousands of U.S. Dollars (except otherwise noted)
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Stakes
 
1,507,379

 
—

 
—
%
 
3,012,351

 
—

 
—
%
Betting Net Win Margin (%)
 
9.7
%
 
—
%
 
—
%
 
7.3
%
 
—
%
 
—
%
 
 

 
 
 

 

 
 
 

Revenue
 

 
 
 

 

 
 
 

Poker
 
2,714

 
—

 
—
%
 
6,004

 
—

 
—
%
Gaming
 
92,591

 
—

 
—
%
 
182,894

 
—

 
—
%
Betting
 
146,443

 
—

 
—
%
 
220,940

 
—

 
—
%
Other ¹
 
11,128

 
—

 
—
%
 
22,135

 
—

 
—
%
Total revenue
 
252,876

 
—

 
—
%
 
431,973

 
—

 
—
%
 
 

 
 
 

 

 
 
 

QAUs (millions)
 
2.2

 
—

 
—
%
 
 
 
 
 
 
QNY ($/QAU)
 
112

 
—

 
—
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit (excluding depreciation and amortization)
 
177,621

 
—

 
—
%
 
299,146

 
—

 
—
%
Gross profit margin (%)
 
70.2
%
 
—
%
 
—
%
 
69.3
%
 
—
%
 
—
%
 
 

 
 
 

 

 
 
 

General and administrative
 
108,488

 
—

 
—
%
 
217,075

 
—

 
—
%
Sales and marketing
 
30,717

 
—

 
—
%
 
65,311

 
—

 
—
%
Research and development
 
3,535

 
—

 
—
%
 
7,871

 
—

 
—
%
Operating income
 
34,881

 
—

 
—
%
 
8,889

 
—

 
—
%
 
 

 
 
 

 

 
 
 

Adjusted EBITDA 2
 
101,053

 
—

 
—
%
 
143,272

 
—

 
—
%
Adjusted EBITDA Margin (%) 2
 
40.0
%
 
—
%
 
—
%
 
33.2
%
 
—
%
 
—
%
____________________________
1 Other revenue includes $1.2 million and $2.7 million for the three and six months ended June 30, 2019, respectively, that the Corporation excluded from its consolidated results as it related to certain non-gaming related transactions with the International segment.
2 Non-IFRS measure. For important information on The Stars Group’s non-IFRS measures, see below under “Non-IFRS Measures” and the tables under “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”.

•
Revenue - Revenue for the quarter, which on a local currency (Great Britain pound sterling) basis was a Sky Betting & Gaming record, was primarily driven by strong growth in QAUs and Stakes, largely as a result of the success of investments in promotional activity in the first quarter, including during the Cheltenham Festival, one of the U.K.’s most popular horse racing events. Betting Net Win Margin was 9.7%, slightly above the historical long-term average of approximately 9%.

•
Customers - Record QAUs and Stakes in the quarter, which were primarily a result of the successful promotional activity and ongoing product innovation and improvements across betting and gaming offerings, in each case exceeding the positive impact of the FIFA World Cup in the prior year period. Stakes continued to see strong growth from increased new customer engagement,


while QAUs also continued to benefit from the on-going roll-out of personalized promotions and new and exclusive content across the Sky Betting & Gaming brands, including the recent launches of Sky Bingo Arcade and Sky Lotto, a new free-to-play game.

Australia
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In thousands of U.S. Dollars (except otherwise noted)
 
2019
 
2018 ¹
 
% Change
 
2019
 
2018 ¹
 
% Change
Stakes
 
742,312

 
710,269

 
4.5
 %
 
1,496,638

 
867,726

 
72.5
 %
Betting Net Win Margin (%)
 
8.5
%
 
8.6
%
 
(1.2
)%
 
8.3
%
 
8.3
%
 
—
 %

 

 
 
 

 

 
 
 

Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Betting
 
63,226

 
61,277

 
3.2
 %
 
124,346

 
72,402

 
71.7
 %
Other
 
844

 
—

 
—
 %
 
1,898

 
—

 
—
 %
Total revenue
 
64,070

 
61,277

 
4.6
 %
 
126,244

 
72,402

 
74.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
QAUs (millions)
 
0.21

 
—

 
—
 %
 
 
 
 
 
 
QNY ($/QAU)
 
295

 
—

 
—
 %
 
 
 
 
 
 

 

 
 
 

 

 
 
 

Gross profit (excluding depreciation and amortization)
 
38,376

 
46,799

 
(18.0
)%
 
75,657

 
54,435

 
39.0
 %
Gross profit margin (%)
 
59.9
%
 
76.4
%
 
(21.6
)%
 
59.9
%
 
75.2
%
 
(20.3
)%

 

 
 
 

 

 
 
 

General and administrative
 
28,821

 
40,270

 
(28.4
)%
 
54,903

 
44,607

 
23.1
 %
Sales and marketing
 
13,304

 
12,262

 
8.5
 %
 
24,068

 
16,473

 
46.1
 %
Research and development
 
576

 
768

 
(25.0
)%
 
2,149

 
984

 
118.4
 %
Operating loss
 
(4,325
)
 
(6,501
)
 
33.5
 %
 
(5,463
)
 
(7,629
)
 
28.4
 %

 

 
 
 

 

 
 
 

Adjusted EBITDA 2
 
7,192

 
13,489

 
(46.7
)%
 
15,822

 
12,643

 
25.1
 %
Adjusted EBITDA Margin (%) 2
 
11.2
%
 
22.0
%
 
(49.1
)%
 
12.5
%
 
17.4
%
 
(28.2
)%
_____________________________
1 The Stars Group acquired 62% of BetEasy on February 27, 2018 and a further 18% on April 24, 2018, with BetEasy acquiring William Hill Australia on the same day.
2 Non-IFRS measure. For important information on The Stars Group’s non-IFRS measures, see below under “Non-IFRS Measures” and the tables under “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”.

•
Revenue – Revenue for the quarter increased year-over-year primarily as a result of Stakes growth driven by the migration of customers of the former William Hill Australia business to the BetEasy platform and the launch of MyRewards towards the end of the first quarter. This was partially offset by the positive impact of the FIFA World Cup in the prior year period. Betting Net Win Margin of 8.5% was in line with the long-term historical average.

•
Customers – QAUs improved from the prior quarter driven by continued player acquisition, but decreased from the prior year period primarily as a result of the migration of customers of the former William Hill Australia business to the BetEasy platform beginning in August 2018, and an increased focus on high-value, recreational customers. QNY benefited from encouraging results from the continued roll-out of MyRewards, allowing for targeted, personalized promotions.

•
Kayo Sports – In May 2019, BetEasy announced a new partnership with Kayo Sports to become the exclusive wagering partner of the Australian multi-sport streaming service. Under the two-year agreement, BetEasy and Kayo will work together to deliver innovative content, statistics and promotional integrations that deepen engagement and enhance the wagering and viewing experience for Australian customers.

For additional information regarding The Stars Group’s reporting segments and major lines of operations, please see The Stars Group’s interim condensed consolidated financial statements for the three and six months ended June 30, 2019 (the “Q2 2019 Financial Statements”), including note 5 therein, and management’s discussion and analysis thereon (the “Q2 2019 MD&A”).





2019 Updated Full Year Guidance

The Stars Group is updating its 2019 full year consolidated financial guidance ranges as follows:

•
Revenue of between $2,500 and $2,575 million (previously $2,640 and $2,765 million);
•
Adjusted EBITDA of between $905 and $930 million (previously $960 and $1,010 million); and
•
Adjusted Diluted Net Earnings per Share of between $1.68 and $1.83 (previously $1.87 and $2.11).

In addition to the updated assumptions detailed below, the expected revenue and Adjusted EBITDA ranges reflect the impact of negative foreign exchange fluctuations, a historically low Betting Net Win Margin in the first quarter for the United Kingdom segment, the slower than planned recovery in certain disrupted markets and some delays in launching The Stars Group’s newly licensed operations in certain jurisdictions, such as Switzerland.

In addition to approximately $15 million for negative foreign exchange fluctuations, the expected Adjusted EBITDA range also reflects the impact of the following factors:

•
Approximately $40 million for The Stars Group’s investment in FOX Bet and its U.S. operations; and
•
An offsetting underlying improvement in operations, primarily driven by an operational excellence program to streamline certain fixed costs and currently expected sequential improvements in disrupted markets.

The Stars Group continues to expect to achieve the medium-term financial and leverage target ranges set out in its news release on March 27, 2019, but now over the three to five year period from the updated 2019 financial guidance ranges above.

In addition, to provide further clarity with respect to certain key assumptions and the impact of its 2018 acquisitions on its full year 2019 expected results, The Stars Group is also updating information for certain financial items, which unless noted below remain unchanged from the previously announced ranges:

•
Depreciation and amortization (excluding purchase price allocation amortization) of between $75 and $85 million;
•
Cash interest expense of between $280 and $290 million (previously between $290 and $300 million);
•
Effective tax rate (applied to Adjusted EBITDA less cash interest expense and non-purchase price allocation related depreciation and amortization) of approximately 10% (previously between 8% and 10%);
•
Diluted Shares of 283 million (previously 277 million); and
•
Capital expenditures, which includes estimated spend on intangible assets, property, plant and equipment and certain development costs, of approximately $150 million (previously between $110 and $150 million)

These unaudited expected results, targets and other information reflect management’s view of current and future market and business conditions, including certain accounting assumptions and, other than as noted directly above or below, assumptions of (i) expected Betting Net Win Margin of approximately 8.5% (with the remainder of the year and the medium-term targets unchanged from the previous estimates of approximately 9%), (ii) no further material changes in the current challenging operating conditions in certain markets from prior regulatory changes, including constraints on payment processing and accessing certain products, and no material changes to current expectations with respect to certain macroeconomic or political events, including Brexit, (iii) no other material regulatory events or material changes in applicable taxes or duty rates, (iv) no other material investments associated with the entry into new markets and no material change in The Stars Group’s current estimate of its aggregate addressable U.S. market size of approximately 23 states and $9.3 billion by 2025, (v) other than as updated below, no further material foreign currency exchange rate fluctuations, particularly against the Euro, Great Britain pound sterling and Australian dollar, (vi) no material impairment or write-down of the assets to which depreciation and amortization relates, (vii) no material change in the prevailing EURIBOR or LIBOR rates as at June 30, 2019 (previously December 31, 2018) and no material adverse impact on applicable hedging counterparties, (viii) no material change in the mix of taxable income by jurisdiction, rate of corporate tax or tax regimes in the jurisdictions in which The Stars Group currently operates; (ix) no material change in the mix of geographies where The Stars Group currently offers its products, and (x) no material change in The Stars Group’s Diluted Shares.

Such guidance, targets and information are also now based on an updated Euro to U.S. dollar exchange rate of 1.12 to 1.00 (previously 1.135 to 1.00), a Great Britain pound sterling to U.S. dollar exchange rate of 1.22 to 1.00 (previously 1.31 to 1.00) and an Australian dollar to U.S. dollar exchange rate of 0.69 to 1.00 (previously 0.712 to 1.00), for the second half of 2019.

Consolidated Financial Statements, Management’s Discussion and Analysis and Additional Information



The Stars Group’s Q2 2019 Financial Statements, Q2 2019 MD&A, and 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. The financial information presented in this news releases was derived from the Q2 2019 Financial Statements.

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 Details

The Stars Group will host a conference call today, August 12, 2019 at 8:30 a.m. ET to discuss its financial results for the second quarter 2019 and related matters, and provide additional detail with respect to the information in this news release, its webcast presentation and related filings. 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 13693490. To access the webcast please use the following link: http://public.viavid.com/index.php?id=134939.

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 net earnings (loss), which is the nearest IFRS measure. For additional information, see "Reconciliations" in the Q2 2019 MD&A.

 
 
Three Months Ended June 30, 2019
In thousands of U.S. Dollars

International

United Kingdom

Australia

Corporate

Consolidated
Net earnings (loss)

95,502


34,881


(4,325
)

(121,429
)

4,629












Income tax expense

—


—


—


(21,081
)

(21,081
)
Net financing charges

—


—


—


(68,245
)

(68,245
)











Operating income (loss)

95,502


34,881


(4,325
)

(32,103
)

93,955












Depreciation and amortization

39,377


60,146


9,404


154


109,081

Add (deduct) the impact of the following:










Stock-based compensation

—


—


—


4,726


4,726

(Gains) losses from investments

(463
)

44


—


93


(326
)
(Recovery) impairment of intangible assets

(1
)

2,499


—


—


2,498

Other costs

8,808


3,483


2,113


12,396


26,800

Total adjusting items

8,344


6,026


2,113


17,215


33,698












Adjusted EBITDA

143,223


101,053


7,192


(14,734
)

236,734




 
 
Six Months Ended June 30, 2019
In thousands of U.S. Dollars
 
International

United Kingdom

Australia

Corporate

Consolidated
Net earnings (loss)
 
210,085


8,889


(5,463
)

(181,224
)

32,287


 









Income tax expense
 
—


—


—


(7,983
)

(7,983
)
Net financing charges
 
—


—


—


(115,222
)

(115,222
)

 









Operating income (loss)
 
210,085


8,889


(5,463
)

(58,019
)

155,492


 









Depreciation and amortization
 
77,356


121,817


18,846


356


218,375

Add (deduct) the impact of the following:
 









Stock-based compensation
 
—


—


—


7,462


7,462

(Gains) losses from investments
 
(530
)

44


—


93


(393
)
Impairment of intangible assets
 
11


2,641


—


—


2,652

Other costs
 
15,641


9,881


2,439


20,540


48,501

Total adjusting items
 
15,122


12,566


2,439


28,095


58,222


 









Adjusted EBITDA
 
302,563


143,272


15,822


(29,568
)

432,089


 
 
Three Months Ended June 30, 2018
In thousands of U.S. Dollars
 
International
 
United Kingdom
 
Australia
 
Corporate
 
Consolidated
Net earnings (loss)
 
125,084

 
—

 
(6,501
)
 
(273,407
)
 
(154,824
)
 
 
 
 
 
 
 
 
 
 
 
Income tax recovery
 
—

 
—

 
—

 
3,404

 
3,404

Net financing charges
 
—

 
—

 
—

 
(160,360
)
 
(160,360
)
Net earnings from associates
 
1,068

 
—

 
—

 
—

 
1,068

 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
124,016

 
—

 
(6,501
)
 
(116,451
)
 
1,064

 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
35,987

 
—

 
8,588

 
10

 
44,585

Add (deduct) the impact of the following:
 

 

 

 

 
 
Acquisition-related costs and deal contingent forwards
 
—

 
—

 
—

 
95,627

 
95,627

Stock-based compensation
 
—

 
—

 
—

 
3,265

 
3,265

(Gain) loss from investments
 
(270
)
 
—

 
5

 
—

 
(265
)
Impairment of intangible assets
 
959

 
—

 
—

 
—

 
959

Other costs
 
3,775

 
—

 
11,397

 
7,864

 
23,036

Total adjusting items
 
4,464

 
—

 
11,402

 
106,756

 
122,622

 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
164,467

 
—

 
13,489

 
(9,685
)
 
168,271




 
 
Six Months Ended June 30, 2018
In thousands of U.S. Dollars
 
International
 
United Kingdom
 
Australia
 
Corporate
 
Consolidated
Net earnings (loss)
 
271,922

 
—

 
(7,629
)
 
(344,756
)
 
(80,463
)
 
 
 
 
 
 
 
 
 
 
 
Income tax recovery
 
—

 
—

 
—

 
2,249

 
2,249

Net financing charges
 
—

 
—

 
—

 
(198,711
)
 
(198,711
)
Net earnings from associates
 
1,068

 
—

 
—

 
—

 
1,068

 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
270,854

 
—

 
(7,629
)
 
(148,294
)
 
114,931

 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
73,956

 
—

 
9,868

 
19

 
83,843

Add the impact of the following:
 

 

 

 

 
 
Acquisition-related costs and deal contingent forwards
 
—

 
—

 
—

 
110,818

 
110,818

Stock-based compensation
 
—

 
—

 
—

 
5,648

 
5,648

Loss from investments
 
247

 
—

 
—

 
—

 
247

Impairment of intangible assets
 
1,074

 
—

 
—

 
—

 
1,074

Other costs
 
4,743

 
—

 
10,404

 
11,585

 
26,732

Total adjusting items
 
6,064

 
—

 
10,404

 
128,051

 
144,519

 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
350,874

 
—

 
12,643

 
(20,224
)
 
343,293


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In thousands of U.S. Dollars (except per share amounts)
 
2019
 
2018
 
2019
 
2018
Net earnings (loss)
 
4,629

 
(154,824
)
 
32,287

 
(80,463
)
Income tax expense (recovery)
 
21,081

 
(3,404
)
 
7,983

 
(2,249
)
Earnings (loss) before income taxes
 
25,710

 
(158,228
)
 
40,270

 
(82,712
)
Add (deduct) the impact of the following:
 
 
 
 
 
 
 
 
Interest accretion
 
14,088

 
9,029

 
22,357

 
21,080

Loss on debt extinguishment
 
—

 
124,976

 
—

 
124,976

Re-measurement of contingent consideration
 
(3,335
)
 
3,697

 
(12,713
)
 
3,697

Re-measurement of embedded derivative
 
(12,200
)
 
—

 
(34,800
)
 
—

Unrealized foreign exchange (gain) loss on financial instruments associated with financing activities
 
(292
)
 
—

 
1,340

 
—

Ineffectiveness on cash flow hedges
 
5,708

 
—

 
7,564

 
—

Acquisition-related costs and deal contingent forwards
 
—

 
95,627

 
—

 
110,818

Amortization of acquisition intangibles
 
87,789

 
31,482

 
177,744

 
62,858

Stock-based compensation
 
4,726

 
3,265

 
7,462

 
5,648

Gain from investments and earnings from associates
 
(326
)
 
(1,333
)
 
(393
)
 
(821
)
Impairment of intangible assets
 
2,498

 
959

 
2,652

 
1,074

Other costs
 
26,800

 
23,036

 
48,501

 
26,732

Adjust for income tax expense
 
(13,697
)
 
(1,487
)
 
(16,915
)
 
(3,565
)
Adjusted Net Earnings
 
137,469

 
131,023

 
243,069

 
269,785

Adjusted Net Earnings attributable to
 
 
 
 
 
 
 
 
Shareholders of The Stars Group Inc.
 
136,584

 
129,237

 
241,410

 
269,469

Non-controlling interest
 
885

 
1,786

 
1,659

 
316


 

 
 
 

 
 
Diluted Shares
 
282,399,213

 
215,380,175

 
278,181,337

 
212,449,078

Adjusted Diluted Net Earnings per Share
 
0.48

 
0.60

 
0.87

 
1.27




The table below presents certain items comprising “Other costs” in the reconciliation tables above:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In thousands of U.S. Dollars
 
2019
 
2018
 
2019
 
2018
Integration costs of acquired businesses
 
4,899

 
11,467

 
12,922

 
11,467

Financial expenses
 
1,083

 
4,330

 
2,113

 
2,049

Restructuring expenses
 
2,320

 
1,426

 
6,229

 
2,058

AMF, foreign payments and other investigation and related professional fees
 
6,511

 
2,875

 
9,220

 
4,659

Lobbying (U.S. and Non-U.S.) and other legal expenses
 
3,290

 
2,665

 
6,562

 
5,658

Professional fees in connection with non-core activities
 
8,643

 
102

 
10,463

 
553

Retention bonuses
 
—

 
117

 
—

 
234

(Gain) loss on disposal of assets
 
(393
)
 
41

 
(393
)
 
41

Other
 
447

 
13

 
1,385

 
13

Other costs
 
26,800

 
23,036

 
48,501

 
26,732


The table below presents a reconciliation of Free Cash Flow to net cash flows from operating activities, which is the nearest IFRS measure:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In thousands of U.S. Dollars
 
2019
 
2018
 
2019
 
2018
Net cash inflows from operating activities
 
173,208

 
164,011

 
283,593

 
296,080

Customer deposit liability movement
 
12,995

 
(14,090
)
 
(2,346
)
 
(13,901
)

 
186,203

 
149,921

 
281,247

 
282,179

Capital expenditure:
 

 
 
 

 
 
Additions to deferred development costs
 
(18,887
)
 
(9,759
)
 
(39,033
)
 
(16,190
)
Additions to property and equipment
 
(4,131
)
 
(5,676
)
 
(8,178
)
 
(9,261
)
Additions to intangible assets
 
(13,971
)
 
(9,415
)
 
(18,505
)
 
(11,842
)
Interest paid
 
(50,524
)
 
(34,790
)
 
(142,285
)
 
(66,278
)
Debt servicing cash flows (excluding voluntary prepayments)
 
(13,870
)
 
(5,425
)
 
(25,939
)
 
(11,493
)
Free Cash Flow
 
84,820

 
84,856

 
47,307

 
167,115


The table below presents a reconciliation of Net Debt:
 
 
 
In thousands of U.S. Dollars
 
As at June 30, 2019
Current portion of long-term debt

35,750

Long-term debt

5,053,165

Less: Cash and cash equivalents - operational

339,239

Net Debt
 
4,749,676



The table below presents a reconciliation of The Stars Group’s updated 2019 financial guidance ranges for Adjusted EBITDA and Adjusted Diluted Net Earnings per Share to their corresponding 2018 historical balances. Reconciliations of such 2018 historical balances to their nearest non-IFRS measures are as presented in the news release issued by The Stars Group on March 6, 2019, under the heading “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”.


 
 
2018 Actual
 
2019 Full Year Guidance
 
2019 Full Year Guidance
In millions of U.S. Dollars (except per share amounts)

 
 
 
Low1
 
High1
Operating Income (loss)
 
253
 
330
 
355
 
 
 
 
 
 
 
Depreciation and amortization
 
283
 
450
 
430
Add (deduct) the impact of the following:
 
 
 
 
 
 
     Adjusting items2
 
136
 
10
 
20
     Other costs3
 
109
 
115
 
125
Total Adjustments
 
245
 
125
 
145
 
 
 
 
 
 
 
Adjusted EBITDA
 
781
 
905
 
930
 
 
 
 
 
 
 
Depreciation and amortization4
 
41
 
85
 
75
Interest5
 
184
 
290
 
280
Taxes6
 
22
 
50
 
53
Adjusted Net Earnings
 
534
 
480
 
522
 
 
 
 
 
 
 
Adjusted Net Earnings attributable to
 
 
 
 
 
 
Shareholders of Stars Group Inc.
 
531
 
475
 
518
Non-controlling Interest
 
3
 
5
 
4
 
 
 
 
 
 
 
Diluted Shares
 
243
 
283
 
283
Adjusted Diluted Net Earnings per Share
 
2.19
 
1.68
 
1.83
_____________________________
1 For relevant assumptions, see above under “2019 Updated Financial Guidance”. Note that certain reconciling or adjusting items and costs for 2019 cannot be projected or predicted with reasonable certainty without unreasonable effort due to a number of factors, including variability from potential foreign exchange fluctuations impacting financial expenses, the nature and timing of other non-recurring or one-time costs (such as impairment of intangibles assets and certain professional fees), which could vary materially based on actual events or transactions or unknown or unpredictable variables, as well as the typical variability arising from the preparation and completion of annual financial statements, including, without limitation, certain income tax provision accounting, annual impairment testing and other accounting matters. Other adjusting items and costs (such as stock-based compensation, acquisition and integration-related costs, operational efficiency-related costs and other strategy-related expenses) may otherwise reveal commercially or competitively sensitive information. The Stars Group has also not provided a reconciliation of the non-IFRS measures to the nearest IFRS measures included in its updated full year 2019 guidance provided in this news release because of these reasons.
2 With respect to the relevant adjusting items for 2018, see the Adjusted EBITDA reconciliation in the news release issued by The Stars Group on March 6, 2019, under the heading “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”. With respect to 2019, The Stars Group currently expects to incur and adjust for substantially similar items as it did in 2018 except for “acquisition-related costs and deal contingent forwards”, which related to the acquisitions of Sky Betting & Gaming and BetEasy and comprised the majority of such adjusting items in that year.
3 With respect to the Other costs for 2018, see the "Other costs" reconciliation in the news release issued by The Stars Group on March 6, 2019, under the heading “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”. With respect to 2019, The Stars Group currently expects to incur and adjust for substantially similar costs as it did in 2018.
4 “Depreciation and amortization” means total depreciation and amortization, excluding amortization of acquisition intangibles, which is not adjusted for in this measure.
5 “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.
6 “Taxes” means total income tax expense, excluding the impact of tax on “Adjusting items” and “Other costs” included in the calculation of Adjusted EBITDA for each period.



For additional information on The Stars Group’s non-IFRS measures, see the Q2 2019 MD&A, including under the headings “Management’s Discussion and Analysis”, “Non-IFRS Measures, Key Metrics and Other Data”, “Segment Results of Operations” and “Reconciliations”.

About The Stars Group

The Stars Group is a provider of technology-based product offerings in the global gaming and interactive entertainment industries. Its brands have millions of registered customers globally and collectively are leaders in online and mobile betting, poker, casino and other gaming-related offerings. The Stars Group owns or licenses gaming and related consumer businesses and brands, including PokerStars, PokerStars Casino, BetStars, Full Tilt, FOX Bet, BetEasy, Sky Bet, Sky Vegas, Sky Casino, Sky Bingo, Sky Poker, and Oddschecker, as well as live poker tour and events brands, including 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. The Stars Group is one of the world’s most licensed online gaming operators with its subsidiaries collectively holding licenses or approvals in 21 jurisdictions throughout the world, including in Europe, Australia, and the Americas. The Stars Group’s vision is to become the world’s favorite iGaming destination and its mission is to provide its customers with winning moments.

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 certain future operational and growth plans and strategies, and certain financial items relating to the full year 2019 results. Forward-looking statements and information can, but may not always, be identified by the use of words such as "seek", "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 or variations or synonyms of these words or comparable terminology and similar 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 and its customers, partners, suppliers and industries in which it operates or may operate in the future. 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 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: customer and operator preferences and changes in the economy; reputation and brand growth; competition and the competitive environment within addressable markets and industries; macroeconomic conditions and trends in the gaming and betting industry; ability to predict fluctuations in financial results from quarter to quarter; ability to mitigate tax risks and adverse tax consequences, including, without limitation, changes in tax laws or administrative policies relating to tax and the imposition of new or additional taxes, such as value-added and point of consumption taxes, and gaming duties; The Stars Group’s substantial indebtedness requires that it use a significant portion of its cash flow to make debt service payments; impact of inability to complete future or announced acquisitions or to integrate businesses successfully, including, without limitation, Sky Betting & Gaming and BetEasy; contractual relationships of The Stars Group with FOX Corporation and Sky plc and/or their respective subsidiaries; an ability to realize all or any of The Stars Group’s estimated synergies and cost savings in connection with acquisitions, including, without limitation, the acquisition of Sky Betting & Gaming and the Australian acquisitions; ability to mitigate foreign exchange and currency risks; legal and regulatory requirements; potential changes to the gaming regulatory framework, including without limitation, those that may impact The Stars Group’s ability to access and operate in certain jurisdictions, whether directly or through arrangements with locally based operators; the heavily regulated industry in which The Stars Group carries on its business; ability to obtain, maintain and comply with all applicable and required licenses, permits and certifications to offer, operate and market its product offerings, including difficulties or delays in the same; social responsibility concerns and public opinion; protection of proprietary technology and intellectual property rights; intellectual property infringement or invalidity claims; and systems, networks, telecommunications or service disruptions or failures or cyber-attacks and failure to protect customer data, including personal and financial information. These factors are not intended to represent a complete list of the factors that could affect The Stars Group; however, these factors as well as other applicable risks and uncertainties include, but are not limited to, those identified in its most recently filed annual information form, including under the heading "Risk Factors and Uncertainties", and in its most recently filed management’s discussion and analysis, including under the headings "Caution Regarding Forward-Looking Statements", "Risk Factors and Uncertainties" and "Non-IFRS Measures, Key Metrics and Other Data", 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 in the future with applicable securities authorities in the future, should be considered carefully. Investors are cautioned not to put undue reliance on forward-looking statements or information. Any forward-looking statement or information in this news release are expressly qualified by this cautionary statement. 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 Measures

This news release references non-IFRS financial measures. The Stars Group believes these non-IFRS financial measures will provide investors with useful supplemental information about the financial and operational 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, identifying and evaluating trends, and making decisions. The Stars Group believes that such non-IFRS financial measures provide useful information about its underlying, core operating results and trends, enhance the overall understanding of its past performance and future prospects and allow for greater transparency with respect to metrics and measures used by management in its financial and operational decision-making.

Although management believes these non-IFRS 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. They are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS. These measures may be different from non-IFRS financial measures used by other companies any may not be comparable to similar meanings prescribed by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of certain of these measures is provided for period-over-period 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 provides the following non-IFRS measures in this news release:

Adjusted EBITDA means net earnings before financial expenses, income tax expense (recovery), depreciation and amortization, stock-based compensation, restructuring, net earnings (loss) on associate and certain other items as set out in the reconciliation tables under "Reconciliation of Non-IFRS Measures to Nearest IFRS Measures" above.

Adjusted EBITDA Margin means Adjusted EBITDA as a proportion of total revenue.

Adjusted Net Earnings means net earnings before interest accretion, amortization of intangible assets resulting from purchase price allocations following acquisitions, stock-based compensation, restructuring, net earnings (loss) on associate, and certain other items. In addition, as previously disclosed, The Stars Group makes adjustments for (i) the re-measurement of contingent consideration, which was previously included in, and adjusted for through, interest accretion, but starting with The Stars Group’s interim condensed consolidated financial statements and related notes for the three and nine months ended September 30, 2018 (the “Q3 2018 Financial Statements”), it is a separate line item, (ii) the re-measurement of embedded derivatives and ineffectiveness on cash flow hedges, each of which were new line items in the Q3 2018 Financial Statements, and (iii) certain non-recurring tax adjustments and settlements. Each adjustment to net earnings is then adjusted for the tax impact, where applicable, in the respective jurisdiction to which the adjustment relates. Adjusted Net Earnings and any other non-IFRS measures used by The Stars Group that relies on or otherwise incorporates Adjusted Net Earnings that was reported for previous periods have not been restated under the updated definition on the basis that The Stars Group believes that the impact of the change to those periods would not be material.

Adjusted Diluted Net Earnings per Share means Adjusted Net Earnings attributable to the Shareholders of The Stars Group Inc. 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 such as warrants and any convertible preferred shares of The Stars Group then outstanding. The effects of anti-dilutive potential Common Shares are ignored in calculating Diluted Shares. Diluted Shares used in the calculation of diluted earnings per share may differ from diluted shares used in the calculation of Adjusted Diluted Net Earnings per Share where the dilutive effects of the potential Common Shares differ. See note 8 in the Q2 2019 Financial Statements. For the three and six months ended June 30, 2019, Diluted Shares used for the calculation of Adjusted Diluted Net Earnings per Share equaled 282,399,213 and 278,181,337, respectively, compared with 215,380,175 and 212,449,078 for the prior year periods, respectively.

Constant Currency Revenue means IFRS reported revenue for the relevant period calculated using the applicable prior year period’s monthly average exchange rates for its local currencies other than the U.S. dollar. Currently, The Stars Group provides Constant Currency Revenue for the International segment and its applicable lines of operations. It does not currently provide Constant Currency Revenue for the United Kingdom and Australia segments because The Stars Group does not yet have full reported comparative periods for these segments as a result of the respective acquisition dates of Sky Betting & Gaming and BetEasy, and with respect to BetEasy, the Corporation had not yet completed the previously announced migration of the former William Hill Australia customers onto the BetEasy platform. The Corporation intends to provide information on the impact of foreign exchange rates for these segments either individually or on a consolidated basis when applicable reported comparative period information is available that the Corporation believes would be reasonably comparable to the current periods as noted above.



Free Cash Flow means net cash flows from operating activities after adding back customer deposit liability movements and after capital expenditures and debt servicing cash flows (excluding voluntary prepayments).

Net Debt means total long-term debt less operational cash.

For additional information on certain of The Stars Group’s non-IFRS measures and the reasons why it believes such measures are useful, see above and the Q2 2019 MD&A, including under the headings “Management’s Discussion and Analysis”, “Non-IFRS Measures, Key Metrics and Other Data”, “Segment Results of Operations” and "Reconciliations".

Key Metrics and Other Data

The Stars Group provides the following key metrics in this news release:

QAUs for the International and Australia reporting segments means 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 online rake or placed a real-money online bet or wager during the applicable quarterly period. The Stars Group defines “active unique customer” as a customer who played or used one of its real-money offerings at least once during the period, and excludes duplicate counting, even if that customer is active across multiple lines of operation (Poker, Gaming and/or Betting, as applicable) within the applicable reporting segment. 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.

QAUs for the United Kingdom reporting segment (which currently includes the Sky Betting & Gaming business operations only) means active unique customers (online and mobile) who have settled a Stake (as defined below) or made a wager on any betting or gaming product within the applicable quarterly period. The Stars Group defines "active unique customer" for the United Kingdom reporting segment 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 more than one line of operation.

QNY means combined revenue for its lines of operation (i.e., Poker, Gaming and/or Betting, as applicable) for each reporting segment, excluding Other revenue, 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.

Net Deposits for the International segment means 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.

Stakes means betting amounts wagered on The Stars Group’s applicable online betting product offerings, and is also an industry term that represents the aggregate amount of funds wagered by customers within the betting line of operation for the period specified.

Betting Net Win Margin means Betting revenue as a proportion of Stakes.

The Stars Group is also continuing the process of integrating its recent acquisitions, as applicable, and implementing its recently changed operating and reporting segments, and once complete, The Stars Group may revise or remove currently presented key metrics or report certain additional or other measures in the future.

For additional information on The Stars Group’s key metrics and other data, see the Q2 2019 MD&A, including under the headings “Non-IFRS Measures, Key Metrics and Other Data” and “Segment Results of Operations”.

For investor relations and media inquiries, please contact:
Vaughan Lewis
Senior Vice President, Communications
Tel: +1 437-371-5730
ir@starsgroup.com
press@starsgroup.com



UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In thousands of U.S. Dollars (except per share and share amounts)
 
2019
 
2018
 
2019
 
2018
Revenue
 
637,618

 
411,512

 
1,218,002

 
804,403

Cost of revenue (excluding depreciation and amortization)
 
(173,910
)
 
(83,637
)
 
(336,546
)
 
(163,901
)
Gross profit (excluding depreciation and amortization)
 
463,708

 
327,875

 
881,456

 
640,502

General and administrative
 
(276,440
)
 
(262,786
)
 
(535,797
)
 
(404,093
)
Sales and marketing
 
(79,915
)
 
(54,899
)
 
(164,258
)
 
(104,317
)
Research and development
 
(13,398
)
 
(9,126
)
 
(25,909
)
 
(17,161
)
Operating income
 
93,955

 
1,064

 
155,492

 
114,931

Gain (loss) on re-measurement of deferred contingent payment
 
3,335

 
(3,697
)
 
12,713

 
(3,697
)
Gain on re-measurement of embedded derivative
 
12,200

 
—

 
34,800

 
—

Unrealized foreign exchange gain (loss) on financial instruments associated with financing activities
 
292

 
—

 
(1,340
)
 
—

Other net financing charges
 
(84,072
)
 
(156,663
)
 
(161,395
)
 
(195,014
)
Net financing charges
 
(68,245
)
 
(160,360
)
 
(115,222
)
 
(198,711
)
Net earnings from associates
 
—

 
1,068

 
—

 
1,068

Earnings (loss) before income taxes
 
25,710

 
(158,228
)
 
40,270

 
(82,712
)
Income tax (expense) recovery
 
(21,081
)
 
3,404

 
(7,983
)
 
2,249

Net earnings (loss)
 
4,629

 
(154,824
)
 
32,287

 
(80,463
)
Net earnings (loss) attributable to
 

 
 
 

 
 
Shareholders of The Stars Group Inc.
 
4,757

 
(153,645
)
 
32,670

 
(78,194
)
Non-controlling interest
 
(128
)
 
(1,179
)
 
(383
)
 
(2,269
)
Net earnings (loss)
 
4,629

 
(154,824
)
 
32,287

 
(80,463
)
Earnings (loss) per Common Share (U.S. dollars)
 

 
 
 

 
 
Basic
 

$0.02

 

($1.01
)
 

$0.12

 

($0.52
)
Diluted
 

$0.02

 

($1.01
)
 

$0.12

 

($0.52
)
Weighted average Common Shares outstanding (thousands)
 

 
 
 

 
 
Basic
 
281,689

 
152,788

 
277,557

 
150,523

Diluted
 
282,399

 
152,788

 
278,181

 
150,523




UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


As at June 30,
 
As at December 31,
In thousands of U.S. Dollars

2019
 
2018
ASSETS


 
 
Current assets


 
 
Cash and cash equivalents - operational

339,239

 
392,853

Cash and cash equivalents - customer deposits

326,628

 
328,223

Total cash and cash equivalents

665,867

 
721,076

Restricted cash advances and collateral

9,239

 
10,819

Prepaid expenses and other current assets

45,296

 
43,945

Current investments - customer deposits

105,196

 
103,153

Accounts receivable

121,190

 
136,347

Income tax receivable

25,074

 
26,085

Total current assets

971,862

 
1,041,425

Non-current assets


 
 
Restricted cash advances and collateral

10,677

 
10,630

Prepaid expenses and other non-current assets

31,605

 
32,760

Non-current accounts receivable

15,418

 
14,906

Property and equipment

139,532

 
85,169

Income tax receivable

24,686

 
15,611

Deferred income taxes

8,405

 
1,775

Derivatives

62,518

 
54,583

Intangible assets

4,590,758

 
4,742,699

Goodwill

5,256,819

 
5,265,980

Total non-current assets

10,140,418

 
10,224,113

Total assets

11,112,280

 
11,265,538

LIABILITIES


 
 
Current liabilities


 
 
Accounts payable and other liabilities

439,349

 
424,007

Customer deposits

421,084

 
423,739

Current provisions

29,556

 
39,189

Derivatives

10,051

 
16,493

Income tax payable

60,419

 
72,796

Current portion of lease liability

18,764

 
—

Current portion of long-term debt

35,750

 
35,750

Total current liabilities

1,014,973

 
1,011,974

Non-current liabilities


 
 
Lease liability

44,121

 
—

Long-term debt

5,053,165

 
5,411,208

Long-term provisions

3,637

 
4,002

Derivatives

40,675

 
6,068

Other long-term liabilities

—

 
79,716

Income tax payable

11,659

 
18,473

Deferred income taxes

574,392

 
580,697

Total non-current liabilities

5,727,649

 
6,100,164

Total liabilities

6,742,622

 
7,112,138

EQUITY


 
 
Share capital

4,355,902

 
4,116,287

Reserves

(525,270
)
 
(469,629
)
Retained earnings

535,431

 
502,761

Equity attributable to the Shareholders of The Stars Group Inc.

4,366,063

 
4,149,419

Non-controlling interest

3,595

 
3,981

Total equity

4,369,658

 
4,153,400

Total liabilities and equity

11,112,280

 
11,265,538




UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended June 30,
In thousands of U.S. Dollars
 
2019
 
2018
Operating activities
 

 
 
Net earnings (loss)
 
32,287

 
(80,463
)
Add (deduct):
 
 
 
 
Income tax expense (recovery) recognized in net earnings (loss)
 
7,983

 
(2,249
)
Net financing charges
 
115,222

 
198,710

Depreciation and amortization
 
218,375

 
83,843

Stock-based compensation
 
7,462

 
5,948

Unrealized loss on foreign exchange
 
656

 
68,996

Unrealized gain on investments
 
(485
)
 
(164
)
Impairment of property and equipment and intangible assets
 
2,652

 
1,074

Net earnings from associates
 
—

 
(1,068
)
Realized (gain) loss on current investments and promissory note
 
(292
)
 
28

Income taxes paid
 
(46,512
)
 
(15,772
)
Changes in non-cash operating elements of working capital
 
(57,433
)
 
18,525

Customer deposit liability movement
 
2,346

 
13,901

Other
 
1,332

 
4,771

Net cash inflows from operating activities
 
283,593

 
296,080

Investing activities
 

 
 
Acquisition of subsidiaries, net of cash acquired
 
—

 
(310,563
)
Additions to intangible assets
 
(18,505
)
 
(11,842
)
Additions to property and equipment
 
(8,178
)
 
(9,261
)
Additions to deferred development costs
 
(39,033
)
 
(16,190
)
Net (purchase) sale of investments utilizing customer deposits
 
(2,043
)
 
16,044

Settlement of minimum revenue guarantee
 
(675
)
 
(2,713
)
Net investments in associates
 
—

 
1,068

Other
 
(356
)
 
(1,137
)
Net cash outflows from investing activities
 
(68,790
)
 
(334,594
)
Financing activities
 

 
 
Issuance of Common Shares
 
235,963

 
646,000

Transaction costs on issuance of Common Shares
 
—

 
(24,225
)
Issuance of Common Shares in relation to stock options
 
1,784

 
27,627

Issuance of long-term debt
 
—

 
425,041

Repayment of long-term debt
 
(367,875
)
 
(106,493
)
Transaction costs on long-term debt
 
—

 
(23,061
)
Repayment of lease liability principal
 
(8,064
)
 
—

Interest paid
 
(142,285
)
 
(66,278
)
Acquisition of further interest in subsidiaries
 
—

 
(48,240
)
Proceeds on loan issued to the holders of non-controlling interest
 
4,894

 
30,918

Net cash (outflows) inflows from financing activities
 
(275,583
)
 
861,289

(Decrease) increase in cash and cash equivalents
 
(60,780
)
 
822,775

Unrealized foreign exchange difference on cash and cash equivalents
 
5,571

 
(6,090
)
Cash and cash equivalents – beginning of period
 
721,076

 
510,323

Cash and cash equivalents – end of period
 
665,867

 
1,327,008