ACROFAN

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

Published : Monday, August 12, 2019, 7:43 pm
ACROFAN=PRNewswire | mediainquiries@prnewswire.com | SNS

TORONTO, Aug. 12, 2019 /PRNewswire/ -- 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













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