The Stars Group Inc. | ||||
Date: February 27, 2020 | By: | /s/ Brian Kyle | ||
Name: | Brian Kyle | |||
Title: | Chief Financial Officer |
Exhibit No. | Description | ||
99.1 | News Release, dated February 27, 2020 | ||
Quarter Ended December 31, | Year Ended December 31, | |||||||||||||||||
In thousands of U.S. Dollars (except percentages and per share amounts) | 2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||||||||||
Total revenue | 687,962 | 652,852 | 5.4 | % | 2,528,448 | 2,029,238 | 24.6 | % | ||||||||||
Gross profit (excluding depreciation and amortization) | 497,471 | 486,815 | 2.2 | % | 1,835,386 | 1,570,074 | 16.9 | % | ||||||||||
Operating income | 92,373 | 73,992 | 24.8 | % | 264,199 | 260,124 | 1.6 | % | ||||||||||
Net earnings (loss) | 81,290 | (38,173 | ) | 313.0 | % | 61,862 | (108,906 | ) | 156.8 | % | ||||||||
Adjusted Net Earnings¹ | 144,816 | 144,663 | 0.1 | % | 533,225 | 533,948 | (0.1 | )% | ||||||||||
Adjusted EBITDA¹ | 249,112 | 239,404 | 4.1 | % | 921,125 | 780,949 | 17.9 | % | ||||||||||
Adjusted EBITDA Margin¹ | 36.2 | % | 36.7 | % | (1.3 | )% | 36.4 | % | 38.5 | % | (5.4 | )% | ||||||
Diluted earnings (loss) per Common Share ($/Share) | 0.28 | (0.14 | ) | 297.6 | % | 0.22 | (0.49 | ) | 144.9 | % | ||||||||
Adjusted Diluted Net Earnings per Share ($/Share)¹ | 0.49 | 0.52 | (5.7 | )% | 1.86 | 2.19 | (15.1 | )% | ||||||||||
Net cash inflows from operating activities | 190,149 | 190,537 | (0.2 | )% | 670,634 | 559,844 | 19.8 | % | ||||||||||
Free Cash Flow¹ | 98,932 | 82,558 | 19.8 | % | 216,390 | 222,950 | (2.9 | )% |
As at | December 31, 2019 | December 31, 2018 | % Change | ||||||
Long-term debt - principal | 5,024,562 | 5,666,075 | (11.3 | )% | |||||
Long-term debt - carrying value | 4,931,175 | 5,446,958 | (9.5 | )% | |||||
Cash - operational | 321,008 | 392,853 | (18.3 | )% |
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 revenue growth within the United Kingdom and Australia segments, which were largely driven by strong underlying trends in customer activity and revenues across those segments, as well as a year-over-year increase in Betting Net Win Margin. During the quarter, online sports betting was The Stars Group’s largest product vertical (39.1% versus 34.3% in 2018), followed by online casino (30.8% versus 30.1% in 2018) and online poker (27.5% versus 32.8% in 2018), while 81% of consolidated revenues were derived from locally regulated or taxed markets 76% in 2018). Revenue for the year increased primarily as a result of the Sky Betting & Gaming and BetEasy acquisitions and the same or substantially similar factors that impacted the fourth quarter as described above. Additional segment specific factors impacting revenue are described below. |
• | Debt and Cash – The Stars Group generated Free Cash Flow of $98.9 million in the fourth quarter of 2019, which was after, among other items, the cash impact of certain adjustments set forth in the Adjusted EBITDA reconciliation below under “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”. The Stars Group ended the quarter with approximately $321.0 million in operational cash and $4.9 billion of gross debt on its balance sheet, resulting in Net Debt of $4.6 billion, which was relatively stable compared to the third quarter and a reduction of approximately $443.9 million from the end of 2018. In February, The Stars Group prepaid an additional $100 million, including accrued and unpaid interest, of its USD first lien term loan using cash on its balance sheet, which brings the total amount repaid since completion of the SBG acquisition in July 2018 to over $700 million. |
• | U.S. Update – Since its launch in September 2019, just four months after The Stars Group announced its U.S. media and sports wagering partnership with FOX Sports, the FOX Sports Super 6 app saw more than 1.3 million downloads in 2019, with an average of over 500,000 customers making at least one prediction each week during the fourth quarter. 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 strong progress in both active customers and revenue on a month-to-month basis, with approximately 65,000 combined QAUs in the fourth quarter. During 2019, FOX Bet’s financial performance was in-line with its previously disclosed expected loss of approximately $40 million for the year. So far in 2020, The Stars Group announced a market access agreement with the Little Traverse Bay Bands of Odawa Indians Gaming Authority for first-skin |
• | BetEasy minority acquisition – In December 2019, The Stars Group announced that it agreed with the minority shareholders of BetEasy, its Australian-based sports betting business, to acquire the remaining 20% interest in the company for AUD$151 million following the earlier of the release of The Stars Group’s full-year 2020 financial results or the completion of its combination with Flutter Entertainment Plc. As part of this agreement, The Stars Group also agreed to pay AUD$100 million to settle the previously disclosed performance, or earn-out, payment under the agreements for its 2018 acquisition of the initial 80% interest, which were subject to certain performance conditions primarily related to BetEasy’s EBITDA and could have reached AUD$232 million, and to repay AUD$56.9 million of outstanding BetEasy minority shareholder loans. |
• | Combination with Flutter Entertainment plc – In October 2019, The Stars Group and Flutter announced that they entered into an arrangement agreement providing for an all-share combination at an exchange ratio of 0.2253 and whereby immediately following completion, shareholders of Flutter would own approximately 54.64% and shareholders of The Stars Group would own approximately 45.36% of the share capital of the combined group. Completion of the combination is currently expected to occur during the second or third quarter of 2020, subject to, among other things, shareholder, court and applicable regulatory approvals. As previously disclosed, in addition to Mr. Gadhia, The Stars Group’s current Executive Chairman, and Mr. Ashkenazi, The Stars Group’s current Chief Executive Officer, The Stars Group is entitled under the arrangement agreement to nominate three additional non-executive directors to serve on the combined group’s board of directors post-completion of the combination. Accordingly, The Stars Group has nominated Messrs. Alfred F. Hurley Jr. and David Lazzarato and Ms. Mary Turner to also serve as directors on the combined group’s board of directors. |
• | Financial Guidance; Earnings Call and Presentation – As a result of the pending combination of The Stars Group and Flutter, The Stars Group will not hold an earnings conference call for the fourth quarter and full-year 2019 and has suspended its practice of providing forward-looking financial guidance. This press release and an accompanying presentation will be available on The Stars Group’s website at www.starsgroup.com. For additional information, see below under “Consolidated Financial Statements, Management’s Discussion and Analysis and Additional Information”. |
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||
In thousands of U.S. Dollars (except otherwise noted) | 2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||||||||||
Stakes | 301,434 | 261,055 | 15.5 | % | 1,054,220 | 966,306 | 9.1 | % | ||||||||||
Betting Net Win Margin (%) | 5.3 | % | 8.3 | % | (36.0 | )% | 6.9 | % | 8.2 | % | (15.9 | )% | ||||||
Revenue | ||||||||||||||||||
Poker | 186,226 | 210,940 | (11.7 | )% | 781,637 | 886,628 | (11.8 | )% | ||||||||||
Poker Constant Currency Revenue | 188,919 | 210,940 | (10.4 | )% | 821,332 | 886,628 | (7.4 | )% | ||||||||||
Gaming | 114,770 | 112,111 | 2.4 | % | 427,316 | 428,364 | (0.2 | )% | ||||||||||
Gaming Constant Currency Revenue | 118,209 | 112,111 | 5.4 | % | 450,754 | 428,364 | 5.2 | % | ||||||||||
Betting | 16,089 | 21,766 | (26.1 | )% | 72,561 | 79,117 | (8.3 | )% | ||||||||||
Betting Constant Currency Revenue | 16,388 | 21,766 | (24.7 | )% | 75,860 | 79,117 | (4.1 | )% | ||||||||||
Other | 7,327 | 10,913 | (32.9 | )% | 30,851 | 46,068 | (33.0 | )% | ||||||||||
Other Constant Currency Revenue | 7,558 | 10,913 | (30.7 | )% | 35,081 | 46,068 | (23.8 | )% | ||||||||||
Total revenue | 324,412 | 355,730 | (8.8 | )% | 1,312,365 | 1,440,177 | (8.9 | )% | ||||||||||
Constant Currency Revenue | 331,074 | 355,730 | (6.9 | )% | 1,383,027 | 1,440,177 | (4.0 | )% | ||||||||||
QAUs (millions) | 1.9 | 2.1 | (9.5 | )% | ||||||||||||||
QNY ($/QAU) | 166 | 163 | 1.8 | % | ||||||||||||||
Constant Currency Revenue QNY | 169 | 163 | 3.8 | % | ||||||||||||||
Gross profit (excluding depreciation and amortization) | 249,594 | 286,167 | (12.8 | )% | 1,015,244 | 1,159,611 | (12.4 | )% | ||||||||||
Gross profit margin (%) | 76.9 | % | 80.4 | % | (4.4 | )% | 77.4 | % | 80.5 | % | (3.9 | )% | ||||||
General and administrative | 116,606 | 143,734 | (18.9 | )% | 441,683 | 468,238 | (5.7 | )% | ||||||||||
Sales and marketing1 | 47,297 | 45,464 | 4.0 | % | 165,588 | 164,600 | 0.6 | % | ||||||||||
Research and development | 8,148 | 4,880 | 67.0 | % | 32,185 | 27,865 | 15.5 | % | ||||||||||
Operating income | 77,543 | 92,089 | (15.8 | )% | 375,788 | 498,908 | (24.7 | )% | ||||||||||
Adjusted EBITDA2 | 135,066 | 168,177 | (19.7 | )% | 604,851 | 703,342 | (14.0 | )% | ||||||||||
Adjusted EBITDA Margin (%)2 | 41.6 | % | 47.3 | % | (11.9 | )% | 46.1 | % | 48.8 | % | (5.6 | )% | ||||||
Net Deposits (millions) | 316 | 338 | (6.4 | )% |
• | Revenue – Revenue decreased for the quarter and for the year, primarily as a result of adverse foreign exchange fluctuations and continued 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. In markets that have been impacted by such disruption, which are all lower-priority markets, revenues for the quarter were 29% lower year-over-year, similar to the trend in each of the first three quarters of the year, with improvements in some markets primarily offset by the closure of PokerStars in Switzerland in July 2019 (where The Stars Group is working with regulators and its local partner to operate in a newly regulated environment in due course). These markets now represent 14% of revenue for the International segment, down from 18% in the prior year period. In the rest of the world, Constant Currency Revenue for the quarter was 1% lower year-over-year, with continued strength in gaming partially offsetting revenue declines in poker. Constant Currency Revenue for 2019 was 3% higher year-over-year, with continued strong growth in gaming. |
• | Poker – Revenue decreased for the quarter and year, with Constant Currency Revenue decreasing 10.4% and 7.4% respectively, primarily as a result of the same factors noted above. Underlying trends were similar in the fourth quarter to those in each of the first three quarters of the year, with the primary negative impact related to the closure of PokerStars in Switzerland in July 2019, together with tougher operating conditions in other markets such as Spain and Sweden, following regulatory changes in those countries. The Stars Group has a deep pipeline of new product launches and marketing plans, in addition to expected new market expansion plans, which it believes will support the development of its International poker business throughout 2020 and into 2021 and help mitigate ongoing disruption in certain markets that will continue to weigh on poker revenues in 2020 before beginning to improve in 2021. The Stars Group believes that Poker remains an important driver of cost-effective customer acquisition, leveraging the awareness and trust of the PokerStars brand to create a large and low-cost customer acquisition channel, supporting The Stars Group’s ability to drive revenue growth through cross-selling to the International segments other product offerings. |
• | Gaming – Revenue increased for the quarter and was relatively flat for the year, primarily as a result of organic growth in most markets, which continues to be driven by the roll-out of new casino games and innovative content, as well as ongoing improvements in cross-selling from poker to casino games. Constant Currency Revenue growth in The Stars Group’s rest of the world markets (all markets excluding disrupted markets) was 21% for the quarter and 24% for the year. The growth in gaming revenue was partially offset by the cessation of operations in certain markets, as well as similar restrictions on some methods of payment processing and adverse foreign exchange fluctuations as described above. The Stars Group currently plans to increase marketing investment in its International gaming business during 2020, which it expects to deliver strong returns over time, but to negatively impact profitability during 2020. |
• | Betting – Revenue for the quarter and year decreased year-over-year primarily as a result of a reduced Betting Net Win Margin, reflecting both the planned investment in the launch of FOX Bet in the United States, and operator-unfavorable sporting results in certain European markets. Stakes increased by 16%, primarily as a result of the launch of FOX Bet and continued organic growth in most key markets, partially offset by the cessation of operations in certain markets, as well as similar restrictions on some methods of payment processing and adverse foreign exchange fluctuations as described above. During 2020, The Stars Group intends to expand the range of products, features and marketing campaigns for its International betting business, leveraging increased expertise from the United Kingdom segment and leveraging the Sky Bet brand in Italy and Germany, as well as launching the new PokerStars Sports brand in certain markets. |
• | Customers – QAUs decreased, primarily due to reduced activity in and the closure of certain markets, each as noted above, but was partially offset by the launch of FOX Bet and PokerStars in Pennsylvania. |
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||
In thousands of U.S. Dollars (except otherwise noted) | 2019 | 2018 ¹ | % Change | 2019 | 2018 ¹ | % Change | ||||||||||||
Stakes | 1,460,111 | 1,289,374 | 13.2 | % | 5,848,641 | 2,511,228 | 132.9 | % | ||||||||||
Betting Net Win Margin (%) | 12.1 | % | 10.1 | % | 20.1 | % | 9.0 | % | 8.6 | % | 5.0 | % | ||||||
Revenue | ||||||||||||||||||
Poker | 2,792 | 3,045 | (8.3 | )% | 11,647 | 5,929 | 96.4 | % | ||||||||||
Poker Constant Currency Revenue | 2,788 | 3,045 | (8.4 | )% | ||||||||||||||
Gaming | 96,870 | 84,164 | 15.1 | % | 364,983 | 157,482 | 131.8 | % | ||||||||||
Gaming Constant Currency Revenue | 96,585 | 84,164 | 14.8 | % | ||||||||||||||
Betting | 177,150 | 130,732 | 35.5 | % | 528,110 | 215,921 | 144.6 | % | ||||||||||
Betting Constant Currency Revenue | 176,500 | 130,732 | 35.0 | % | ||||||||||||||
Other2 | 10,935 | 7,810 | 40.0 | % | 41,939 | 14,799 | 183.4 | % | ||||||||||
Other Constant Currency Revenue | 10,926 | 7,810 | 39.9 | % | ||||||||||||||
Total revenue | 287,747 | 225,751 | 27.5 | % | 946,679 | 394,131 | 140.2 | % | ||||||||||
Constant Currency Revenue | 286,799 | 225,751 | 27.0 | % | ||||||||||||||
QAUs (millions) | 2.0 | 1.9 | 8.0 | % | ||||||||||||||
QNY ($/QAU) | 137 | 116 | 17.6 | % | ||||||||||||||
Gross profit (excluding depreciation and amortization) | 199,056 | 153,880 | 29.4 | % | 655,087 | 275,106 | 138.1 | % | ||||||||||
Gross profit margin (%) | 69.2 | % | 68.2 | % | 1.4 | % | 69.2 | % | 69.8 | % | (0.9 | )% | ||||||
General and administrative | 111,645 | 96,089 | 16.2 | % | 432,354 | 200,576 | 115.6 | % | ||||||||||
Sales and marketing | 38,637 | 35,413 | 9.1 | % | 138,275 | 75,637 | 82.8 | % | ||||||||||
Research and development | 7,168 | 5,660 | 26.6 | % | 18,882 | 10,600 | 78.1 | % | ||||||||||
Operating income (loss) | 41,606 | 16,718 | 148.9 | % | 65,576 | (11,707 | ) | 660.1 | % | |||||||||
Adjusted EBITDA3 | 104,344 | 73,954 | 41.1 | % | 324,633 | 102,107 | 217.9 | % | ||||||||||
Adjusted EBITDA Margin (%)3 | 36.3 | % | 32.8 | % | 10.7 | % | 34.3 | % | 25.9 | % | 32.4 | % |
• | Revenue – Revenue increased significantly for the quarter, primarily due to strong operational momentum across the United Kingdom segment’s betting and gaming products. Constant Currency Revenue for the quarter increased approximately 27% year-over-year. Revenue for the year grew strongly primarily as a result of the timing of the Sky Betting & Gaming acquisition and the same or substantially similar factors that impacted the fourth quarter as described above. |
• | Betting – Revenue increased for the quarter as a result of increased Stakes and an increase in Betting Net Win Margin. The increase in Stakes was primarily driven by ongoing improvements to the segment’s products and promotions, particularly around in-play football, which drove growth in customer engagement and retention. The Betting Net Win Margin for the quarter was 12.1%, which was two percentage points higher year-over-year, primarily driven by a combination of Stakes mix across sports and bet types, more strategic use of free bets, and operator-favorable sporting results compared to the prior year period, which when combined with the growth in Stakes, resulted in revenue growth of 35% year-over year. Revenue for the year grew strongly as a result of the timing of the SBG Acquisition and the same or substantially similar factors that impacted the fourth quarter as described above, with the Betting Net Win Margin for the year of 9% being in-line with the long-term average. |
• | Gaming – Revenue increased for the quarter, benefiting from continued improvements in cross-sell of customers to and from the United Kingdom’s gaming and betting products, as well as the continued roll-out of new and innovative content. Revenue for the year grew strongly as a result of the timing of the SBG Acquisition and the same or substantially similar factors that impacted the fourth quarter as described above. |
• | Customers – QAUs were 2.0 million, which represented growth of 8% year-over-year, primarily driven by strong momentum from the early stages of the European domestic soccer season, together with a successful promotional period around December. |
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||
In thousands of U.S. Dollars (except otherwise noted) | 2019 | 2018 ¹ | % Change | 2019 | 2018 ¹ | % Change | ||||||||||||
Stakes | 794,603 | 877,338 | (9.4 | )% | 3,018,705 | 2,570,502 | 17.4 | % | ||||||||||
Betting Net Win Margin (%) | 9.6 | % | 8.2 | % | 16.5 | % | 9.0 | % | 7.6 | % | 17.8 | % | ||||||
Revenue | ||||||||||||||||||
Betting | 75,920 | 71,542 | 6.1 | % | 270,267 | 196,101 | 37.8 | % | ||||||||||
Betting Constant Currency Revenue | 79,657 | 71,542 | 11.3 | % | ||||||||||||||
Other | 1,093 | 829 | 31.8 | % | 4,147 | 829 | 400.2 | % | ||||||||||
Other Constant Currency Revenue | 1,145 | 829 | 38.1 | % | ||||||||||||||
Total revenue | 77,013 | 72,371 | 6.4 | % | 274,414 | 196,930 | 39.3 | % | ||||||||||
Constant Currency Revenue | 80,802 | 72,371 | 11.6 | % | ||||||||||||||
QAUs (millions) | 0.26 | 0.3 | (13.9 | )% | ||||||||||||||
QNY ($/QAU) | 297 | 243 | 21.9 | % | ||||||||||||||
Gross profit (excluding depreciation and amortization) | 50,031 | 47,768 | 4.7 | % | 170,065 | 137,357 | 23.8 | % | ||||||||||
Gross profit margin (%) | 65.0 | % | 66.0 | % | (1.6 | )% | 62.0 | % | 69.7 | % | (11.1 | )% | ||||||
General and administrative | 30,190 | 31,762 | (4.9 | )% | 110,135 | 116,323 | (5.3 | )% | ||||||||||
Sales and marketing | 20,085 | 15,862 | 26.6 | % | 60,983 | 53,385 | 14.2 | % | ||||||||||
Research and development | 602 | 432 | 39.4 | % | 4,018 | 1,530 | 162.6 | % | ||||||||||
Operating loss | (846 | ) | (288 | ) | (193.8 | )% | (5,071 | ) | (33,881 | ) | 85.0 | % | ||||||
Adjusted EBITDA 2 | 19,881 | 13,683 | 45.3 | % | 44,358 | 21,571 | 105.6 | % | ||||||||||
Adjusted EBITDA Margin (%) 2 | 25.8 | % | 18.9 | % | 36.5 | % | 16.2 | % | 11.0 | % | 47.6 | % |
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. See above for information regarding The Stars Group’s agreement to purchase the remaining minority interest in BetEasy and related matters. |
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 by 6%, primarily as a result of a higher Betting Net Win Margin, partially offset by a decrease in Stakes and adverse foreign exchange fluctuations. The decrease in Stakes was primarily a result of an increased focus on high-value, recreational customers through the continued roll-out of MyRewards allowing for targeted, personalized promotions, together with the prior year period still benefiting from above average promotional activity related to the migration of customers to the BetEasy platform. The Betting Net Win Margin of 9.6% was higher year-over year and compared to 9.0% for the full-year 2019 and the historical long-term average of approximately 8.5%, primarily as a result of the increased effectiveness of MyRewards promotions. Revenue for the year grew strongly as a result of the timing of the BetEasy acquisition and the same or substantially similar factors that impacted the fourth quarter as described above. |
• | Customers – QAUs decreased, primarily as a result of the migration of customers onto the BetEasy platform in 2018 which positively impacted the prior year period, together with a continued focus on high-value, recreational customers as noted above. |
Three Months Ended December 31, 2019 | |||||||||||||||
In thousands of U.S. Dollars | International | United Kingdom | Australia | Corporate | Consolidated | ||||||||||
Net earnings (loss) | 77,543 | 41,606 | (846 | ) | (37,013 | ) | 81,290 | ||||||||
Income tax recovery | — | — | — | 17,965 | 17,965 | ||||||||||
Net financing charges | — | — | — | (29,048 | ) | (29,048 | ) | ||||||||
Net loss from associates | — | — | — | — | — | ||||||||||
Operating income (loss) | 77,543 | 41,606 | (846 | ) | (25,930 | ) | 92,373 | ||||||||
Depreciation and amortization | 44,224 | 61,179 | 9,080 | 178 | 114,661 | ||||||||||
Add (deduct) the impact of the following: | |||||||||||||||
Acquisition-related costs and other certain costs related to the Combination | — | — | 11,780 | 5,246 | 17,026 | ||||||||||
Stock-based compensation | — | — | — | 5,331 | 5,331 | ||||||||||
(Gains) losses from investments | (1,975 | ) | 33 | — | — | (1,942 | ) | ||||||||
Impairment of intangible and other assets | 1,059 | 85 | — | — | 1,144 | ||||||||||
Other costs (income) | 14,215 | 1,441 | (133 | ) | 4,996 | 20,519 | |||||||||
Total adjusting items | 13,299 | 1,559 | 11,647 | 15,573 | 42,078 | ||||||||||
Adjusted EBITDA | 135,066 | 104,344 | 19,881 | (10,179 | ) | 249,112 |
Year Ended December 31, 2019 | |||||||||||||||
In thousands of U.S. Dollars | International | United Kingdom | Australia | Corporate | Consolidated | ||||||||||
Net earnings (loss) | 375,788 | 65,576 | (5,071 | ) | (374,431 | ) | 61,862 | ||||||||
Income tax recovery | — | — | — | 197 | 197 | ||||||||||
Net financing charges | — | — | — | (202,534 | ) | (202,534 | ) | ||||||||
Net loss from associates | — | — | — | — | — | ||||||||||
Operating income (loss) | 375,788 | 65,576 | (5,071 | ) | (172,094 | ) | 264,199 | ||||||||
Depreciation and amortization | 159,895 | 241,283 | 36,703 | 745 | 438,626 | ||||||||||
Add (deduct) the impact of the following: | |||||||||||||||
Acquisition-related costs and other certain costs related to the Combination | — | — | 11,780 | 15,385 | 27,165 | ||||||||||
Stock-based compensation | — | — | — | 18,842 | 18,842 | ||||||||||
(Gains) losses from investments | (2,690 | ) | 77 | — | 93 | (2,520 | ) | ||||||||
Impairment of intangible and other assets | 1,071 | 2,860 | — | — | 3,931 | ||||||||||
Other costs | 70,787 | 14,837 | 946 | 84,312 | 170,882 | ||||||||||
Total adjusting items | 69,168 | 17,774 | 12,726 | 118,632 | 218,300 | ||||||||||
Adjusted EBITDA | 604,851 | 324,633 | 44,358 | (52,717 | ) | 921,125 |
Three Months Ended December 31, 2018 | |||||||||||||||
In thousands of U.S. Dollars | International | United Kingdom | Australia | Corporate | Consolidated | ||||||||||
Net earnings (loss) | 92,089 | 16,718 | (288 | ) | (146,692 | ) | (38,173 | ) | |||||||
Income tax expense | — | — | — | (14,450 | ) | (14,450 | ) | ||||||||
Net financing charges | — | — | — | (97,715 | ) | (97,715 | ) | ||||||||
Net earnings from associates | — | — | — | — | — | ||||||||||
Operating income (loss) | 92,089 | 16,718 | (288 | ) | (34,527 | ) | 73,992 | ||||||||
Depreciation and amortization | 35,950 | 55,237 | 8,753 | 85 | 100,025 | ||||||||||
Add (deduct) the impact of the following: | |||||||||||||||
Acquisition-related costs | — | — | — | 3,084 | 3,084 | ||||||||||
Stock-based compensation | — | — | — | 4,004 | 4,004 | ||||||||||
Loss from investments and associates | 1,297 | — | — | — | 1,297 | ||||||||||
Impairment of intangible and other assets | 678 | 602 | — | — | 1,280 | ||||||||||
Other costs | 38,163 | 1,397 | 5,218 | 10,944 | 55,722 | ||||||||||
Total adjusting items | 40,138 | 1,999 | 5,218 | 18,032 | 65,387 | ||||||||||
Adjusted EBITDA | 168,177 | 73,954 | 13,683 | (16,410 | ) | 239,404 |
Year Ended December 31, 2018 | |||||||||||||||
In thousands of U.S. Dollars | International | United Kingdom | Australia | Corporate | Consolidated | ||||||||||
Net earnings (loss) | 499,976 | (11,707 | ) | (33,881 | ) | (563,294 | ) | (108,906 | ) | ||||||
Income tax recovery | — | — | — | 988 | 988 | ||||||||||
Net financing charges | — | — | — | (371,086 | ) | (371,086 | ) | ||||||||
Net earnings from associates | 1,068 | — | — | — | 1,068 | ||||||||||
Operating income (loss) | 498,908 | (11,707 | ) | (33,881 | ) | (193,196 | ) | 260,124 | |||||||
Depreciation and amortization | 144,304 | 108,879 | 29,476 | 147 | 282,806 | ||||||||||
Add (deduct) the impact of the following: | |||||||||||||||
Acquisition-related costs and deal contingent forward expenses | — | — | — | 115,569 | 115,569 | ||||||||||
Stock-based compensation | — | — | — | 12,806 | 12,806 | ||||||||||
Loss from investments and associates | 1,667 | — | — | — | 1,667 | ||||||||||
Impairment of intangible and other assets | 5,621 | 602 | — | — | 6,223 | ||||||||||
Other costs | 52,842 | 4,333 | 25,976 | 18,603 | 101,754 | ||||||||||
Total adjusting items | 60,130 | 4,935 | 25,976 | 146,978 | 238,019 | ||||||||||
Adjusted EBITDA | 703,342 | 102,107 | 21,571 | (46,071 | ) | 780,949 |
Quarter Ended December 31, | Year Ended December 31, | |||||||||||
In thousands of U.S. Dollars (except per share amounts) | 2019 | 2018 | 2019 | 2018 | ||||||||
Net earnings (loss) | 81,290 | (38,173 | ) | 61,862 | (108,906 | ) | ||||||
Income tax (recovery) expense | (17,965 | ) | 14,450 | (197 | ) | (988 | ) | |||||
Earnings (loss) before income taxes | 63,325 | (23,723 | ) | 61,665 | (109,894 | ) | ||||||
Add (deduct) the impact of the following: | ||||||||||||
Interest accretion | 9,336 | 12,367 | 37,267 | 42,431 | ||||||||
Loss on debt extinguishment | — | 3,453 | — | 146,950 | ||||||||
Loss (gain) on re-measurement of deferred contingent payment | 5,342 | (9,095 | ) | (7,371 | ) | (342 | ) | |||||
(Gain) loss on re-measurement of embedded derivative | (48,100 | ) | 17,400 | (98,300 | ) | 6,100 | ||||||
Unrealized foreign exchange loss on financial instruments associated with financing activities | 4,169 | 6,902 | 11,320 | 7,202 | ||||||||
Ineffectiveness on cash flow hedges | (2,196 | ) | (2,960 | ) | 8,052 | (14,909 | ) | |||||
Acquisition-related costs, deal contingent forward expenses and certain other costs related to the Combination | 17,026 | 3,084 | 27,165 | 115,569 | ||||||||
Amortization of acquisition intangibles | 85,066 | 86,686 | 346,946 | 241,651 | ||||||||
Stock-based compensation | 5,331 | 4,004 | 18,842 | 12,806 | ||||||||
(Gain) loss from investments and earnings from associates | (1,942 | ) | 1,297 | (2,520 | ) | 599 | ||||||
Impairment of intangible and other assets | 1,144 | 1,280 | 3,931 | 6,223 | ||||||||
Other costs | 20,519 | 55,722 | 170,882 | 101,754 | ||||||||
Adjust for income tax expense | (14,204 | ) | (11,754 | ) | (44,654 | ) | (22,192 | ) | ||||
Adjusted Net Earnings | 144,816 | 144,663 | 533,225 | 533,948 | ||||||||
Adjusted Net Earnings attributable to | ||||||||||||
Shareholders of The Stars Group Inc. | 142,331 | 141,738 | 528,510 | 531,168 | ||||||||
Non-controlling interest | 2,485 | 2,925 | 4,715 | 2,780 | ||||||||
Diluted Shares | 291,102,048 | 273,294,532 | 284,478,637 | 242,768,766 | ||||||||
Adjusted Diluted Net Earnings per Share | 0.49 | 0.52 | 1.86 | 2.19 |
Quarter Ended December 31, | Year Ended December 31, | |||||||||||
In thousands of U.S. Dollars | 2019 | 2018 | 2019 | 2018 | ||||||||
Integration costs of acquired businesses | 2,556 | 17,042 | 19,753 | 45,597 | ||||||||
Financial expenses | 144 | 3,645 | 1,733 | 446 | ||||||||
Restructuring expenses | 8,941 | 2,283 | 37,474 | 8,827 | ||||||||
AMF, foreign payments and other investigation and related professional fees | 2,873 | 2,902 | 18,896 | 6,673 | ||||||||
Lobbying (U.S. and Non-U.S.) and other legal expenses | 2,768 | 6,276 | 14,909 | 16,194 | ||||||||
Professional fees in connection with non-core activities | 3,019 | 2,602 | 21,889 | 4,578 | ||||||||
Retention bonuses | — | — | — | |||||||||
Gain on disposal of assets | — | — | — | |||||||||
Austria gaming duty | — | — | — | (3,679 | ) | |||||||
Acquisition of option rights for market access | — | 20,661 | 22,500 | 20,661 | ||||||||
Legal settlement | — | — | 32,500 | — | ||||||||
Other | 218 | 311 | 1,228 | 2,457 | ||||||||
Other costs | 20,519 | 55,722 | 170,882 | 101,754 |
Quarter Ended December 31, | Year Ended December 31, | |||||||||||
In thousands of U.S. Dollars | 2019 | 2018 | 2019 | 2018 | ||||||||
Net cash inflows from operating activities | 190,149 | 190,537 | 670,634 | 559,844 | ||||||||
Customer deposit liability movement | 13,122 | 4,712 | 13,884 | (7,637 | ) | |||||||
203,271 | 195,249 | 684,518 | 552,207 | |||||||||
Capital expenditure: | ||||||||||||
Additions to deferred development costs | (23,535 | ) | (18,888 | ) | (82,751 | ) | (51,574 | ) | ||||
Additions to property and equipment | (11,672 | ) | (15,161 | ) | (27,523 | ) | (33,952 | ) | ||||
Additions to intangible assets | (3,967 | ) | (11,934 | ) | (25,288 | ) | (28,202 | ) | ||||
Interest paid | (50,971 | ) | (57,771 | ) | (279,284 | ) | (186,162 | ) | ||||
Debt servicing cash flows (excluding voluntary prepayments) | (14,194 | ) | (8,937 | ) | (53,282 | ) | (29,367 | ) | ||||
Free Cash Flow | 98,932 | 82,558 | 216,390 | 222,950 |
In thousands of U.S. Dollars | As at December 31, 2019 | ||
Current portion of long-term debt | 35,750 | ||
Long-term debt | 4,895,425 | ||
Less: Cash and cash equivalents - operational | 321,008 | ||
Net Debt | 4,610,167 |
Year Ended December 31, | ||||||||
In thousands of U.S. Dollars (except per share and share amounts) | 2019 | 2018 | ||||||
Revenue | 2,528,448 | 2,029,238 | ||||||
Cost of revenue (excluding depreciation and amortization) | (693,062 | ) | (459,164 | ) | ||||
Gross profit (excluding depreciation and amortization) | 1,835,386 | 1,570,074 | ||||||
General and administrative | (1,155,440 | ) | (976,992 | ) | ||||
Sales and marketing | (360,662 | ) | (292,963 | ) | ||||
Research and development | (55,085 | ) | (39,995 | ) | ||||
Operating income | 264,199 | 260,124 | ||||||
Gain on re-measurement of deferred contingent payment | 7,371 | 342 | ||||||
Gain (loss) on re-measurement of Embedded Derivative | 98,300 | (6,100 | ) | |||||
Unrealized foreign exchange loss on financial instruments associated with financing activities | (11,320 | ) | (7,202 | ) | ||||
Other net financing charges | (296,885 | ) | (358,126 | ) | ||||
Net financing charges | (202,534 | ) | (371,086 | ) | ||||
Net earnings from associates | — | 1,068 | ||||||
Earnings (loss) before income taxes | 61,665 | (109,894 | ) | |||||
Income tax recovery | 197 | 988 | ||||||
Net earnings (loss) | 61,862 | (108,906 | ) | |||||
Net earnings (loss) attributable to | ||||||||
Shareholders of The Stars Group Inc. | 62,822 | (102,452 | ) | |||||
Non-controlling interest | (960 | ) | (6,454 | ) | ||||
Net earnings (loss) | 61,862 | (108,906 | ) | |||||
Earnings (loss) per Common Share (U.S. dollars) | ||||||||
Basic | $0.22 | ($0.49 | ) | |||||
Diluted | $0.22 | ($0.49 | ) | |||||
Weighted average Common Shares outstanding (thousands) | ||||||||
Basic | 282,885 | 208,270 | ||||||
Diluted | 284,479 | 208,270 |
As at December 31, | ||||||
In thousands of U.S. Dollars | 2019 | 2018 | ||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents – operational | 321,008 | 392,853 | ||||
Cash and cash equivalents – customer deposits | 300,916 | 328,223 | ||||
Total cash and cash equivalents | 621,924 | 721,076 | ||||
Restricted cash advances and collateral | 6,401 | 10,819 | ||||
Prepaid expenses and other current assets | 79,578 | 43,945 | ||||
Current investments – customer deposits | 109,017 | 103,153 | ||||
Accounts receivable | 111,215 | 136,347 | ||||
Income tax receivable | 49,504 | 26,085 | ||||
Derivatives | — | — | ||||
Total current assets | 977,639 | 1,041,425 | ||||
Non-current assets | ||||||
Restricted cash advances and collateral | 10,607 | 10,630 | ||||
Prepaid expenses and other non-current assets | 33,482 | 32,760 | ||||
Non-current accounts receivable | 16,765 | 14,906 | ||||
Property and equipment | 139,228 | 85,169 | ||||
Income tax receivable | 18,556 | 15,611 | ||||
Deferred income taxes | 11,149 | 1,775 | ||||
Derivatives | 169,158 | 54,583 | ||||
Intangible assets | 4,550,222 | 4,742,699 | ||||
Goodwill | 5,348,976 | 5,265,980 | ||||
Total non-current assets | 10,298,143 | 10,224,113 | ||||
Total assets | 11,275,782 | 11,265,538 | ||||
LIABILITIES | ||||||
Current liabilities | ||||||
Accounts payable and other liabilities | 562,731 | 424,007 | ||||
Customer deposits | 409,390 | 423,739 | ||||
Current provisions | 64,928 | 39,189 | ||||
Derivatives | 17,628 | 16,493 | ||||
Income tax payable | 40,834 | 72,796 | ||||
Due to related party | — | — | ||||
Current portion of lease liability | 19,633 | — | ||||
Current portion of long-term debt | 35,750 | 35,750 | ||||
Total current liabilities | 1,150,894 | 1,011,974 | ||||
Non-current liabilities | ||||||
Lease liability | 35,691 | — | ||||
Long-term debt | 4,895,425 | 5,411,208 | ||||
Long-term provisions | 2,885 | 4,002 | ||||
Derivatives | 95,931 | 6,068 | ||||
Other long-term liabilities | 1,770 | 79,716 | ||||
Due to related party | — | — | ||||
Income tax payable | 21,609 | 18,473 | ||||
Deferred income taxes | 552,134 | 580,697 | ||||
Total non-current liabilities | 5,605,445 | 6,100,164 | ||||
Total liabilities | 6,756,339 | 7,112,138 | ||||
EQUITY | ||||||
Share capital | 4,374,150 | 4,116,287 | ||||
Reserves | (423,283 | ) | (469,629 | ) | ||
Retained earnings | 565,583 | 502,761 | ||||
Equity attributable to the Shareholders of The Stars Group Inc. | 4,516,450 | 4,149,419 | ||||
Non-controlling interest | 2,993 | 3,981 | ||||
Total equity | 4,519,443 | 4,153,400 | ||||
Total liabilities and equity | 11,275,782 | 11,265,538 |
Year Ended December 31, | ||||||
In thousands of U.S. Dollars | 2019 | 2018 | ||||
Operating activities | ||||||
Net earnings (loss) | 61,862 | (108,906 | ) | |||
Add (deduct): | ||||||
Income tax recovery recognized in net earnings (loss) | (197 | ) | (988 | ) | ||
Net financing charges | 202,534 | 371,086 | ||||
Depreciation and amortization | 438,626 | 282,806 | ||||
Stock-based compensation | 18,842 | 12,806 | ||||
Acquisition of market access rights in connection with Eldorado | — | 20,661 | ||||
Unrealized loss on foreign exchange | 5,708 | 18,134 | ||||
Unrealized gain on investments and other assets | (971 | ) | (673 | ) | ||
Impairment of intangible and other assets | 3,931 | 6,156 | ||||
Net earnings from associates | — | (1,068 | ) | |||
Realized (gain) loss on current investments and promissory note | (2,520 | ) | 2,727 | |||
Income taxes paid | (78,267 | ) | (41,117 | ) | ||
Changes in non-cash operating elements of working capital | 34,073 | (9,403 | ) | |||
Customer deposit liability movement | (13,884 | ) | 7,637 | |||
Other | 897 | (14 | ) | |||
Net cash inflows from operating activities | 670,634 | 559,844 | ||||
Investing activities | ||||||
Acquisition of subsidiaries, net of cash acquired | (2,460 | ) | (1,865,262 | ) | ||
Additions to intangible assets | (25,288 | ) | (28,202 | ) | ||
Additions to property and equipment | (27,523 | ) | (33,952 | ) | ||
Additions to deferred development costs | (82,751 | ) | (51,574 | ) | ||
Net (purchase) sale of investments utilizing customer deposits | (5,972 | ) | 19,515 | |||
Cash movement from restricted cash | — | 35,000 | ||||
Settlement of minimum revenue guarantee | (675 | ) | (7,006 | ) | ||
Net investments in associates | — | 1,068 | ||||
Other | 4,885 | (3,760 | ) | |||
Net cash outflows from investing activities | (139,784 | ) | (1,934,173 | ) | ||
Financing activities | ||||||
Issuance of Common Shares | 235,963 | 717,250 | ||||
Transaction costs on issuance of Common Shares | — | (32,312 | ) | |||
Issuance of Common Shares in relation to stock options | 12,159 | 31,066 | ||||
Redemption of SBG preferred shares | — | (663,407 | ) | |||
Repayment of shareholder loan on acquisition | — | (10,879 | ) | |||
Issuance of long-debt | — | 5,957,976 | ||||
Repayment of long-term debt | (485,750 | ) | (2,974,393 | ) | ||
Repayment of long-term debt assumed on business combinations | — | (1,079,729 | ) | |||
Transaction costs on long-term debt | — | (36,559 | ) | |||
Settlement of derivatives | — | (125,822 | ) | |||
Repayment of lease liability principal | (17,532 | ) | — | |||
Interest paid | (279,284 | ) | (186,162 | ) | ||
Acquisition of further interest in subsidiaries including deferred contingent payment | (68,394 | ) | (48,240 | ) | ||
Capital contribution from the holders of non-controlling interest | — | 12,060 | ||||
Net (repayment) proceeds on loan issued from the holders of non-controlling interest | (34,047 | ) | 31,730 | |||
Net cash (outflows) inflows from financing activities | (636,885 | ) | 1,592,579 | |||
(Decrease) increase in cash and cash equivalents | (106,035 | ) | 218,250 | |||
Unrealized foreign exchange difference on cash and cash equivalents | 6,883 | (7,497 | ) | |||
Cash and cash equivalents – beginning of period | 721,076 | 510,323 | ||||
Cash and cash equivalents – end of period | 621,924 | 721,076 |