The Stars Group Reports Second Quarter 2018 Results

"The Stars Group's quarterly results reflect both continued organic growth within our International business and the contributions of our Australian acquisitions," stated Rafi Ashkenazi, The Stars Group's Chief Executive Officer. "We continued enhancing our products and user experience across all verticals and executing on our cross-selling strategy."

"The continued emergence of our sports betting and casino offerings and the addition of our 2018 acquisitions have transformed our business and greatly enhanced the foundation and diversity of our consolidated revenue base, which will now be nearly equally split among verticals and roughly 75% locally regulated or taxed," said Mr. Ashkenazi.

"We are now focused on the next stage of our transformation—integration," concluded Mr. Ashkenazi. "While this will be a phased and measured process, we expect that it will prepare us to not only be a leader within the world's largest regulated markets but to also leverage the strength of our combined platform to take advantage of new opportunities and markets."

Second Quarter 2018 Consolidated Financial Summary

Second Quarter 2018 Segmented Financial Summary

International

Australia

As a result of its previously announced Australian acquisitions and in anticipation of the future integration of Sky Betting & Gaming and potential future geographic expansion, The Stars Group revised the composition of its reporting segments and the manner in it reports its operating results as set forth above.  The Stars Group believes that the new presentation will better reflect its current and expected management and operational structure. The Stars Group previously had one reporting segment, gaming, with two major lines of operations, real-money online poker and combined real-money online casino and sportsbook. Given the timing of the recent acquisitions, this is now divided into two reporting segments, International and Australia, and four major lines of operations, Poker, Gaming, Betting and Other, as applicable. The International segment currently includes the business operations of The Stars Group's existing business prior to the Australian acquisitions and Sky Betting & Gaming acquisition, and the Australia segment currently includes the business operations of CrownBet and William Hill Australia.

Second Quarter 2018 and Subsequent Financial Highlights

• Consolidated Total Revenues – Revenues for the quarter increased 34.8% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, revenues for the quarter would have increased by 30.7%. Real-money online Poker, Gaming, and Betting revenues represented 52.7%, 24.8%, and 19.7% of revenues for the quarter, respectively.


• Consolidated Adjusted EBITDA and Adjusted EBITDA Margin – Adjusted EBITDA for the quarter increased 14.8% year-over-year, primarily driven by increased gross profit from organic growth within the International segment. Adjusted EBITDA Margin for the quarter decreased 14.8% year-over-year, primarily driven by higher contribution from the Betting vertical within both the International and Australian segments.


• Poker Revenues – International– Poker revenue for the quarter was $217.0 million, or an increase of approximately 6.9% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, Poker revenues for the quarter would have increased by 3.8%. The increase was primarily driven by the continued positive impact of the Stars Rewards loyalty program, foreign exchange fluctuations, and the introduction of shared poker liquidity in France and Spain in the first quarter and Portugal in the second quarter, as offset by, among other things, the cessation of operations in Australia in September 2017 and Colombia in July 2017, and continued negative operating conditions in Poland due to certain prior regulatory changes in that jurisdiction.


• Gaming Revenues – International – Gaming revenue for the quarter was $101.9 million, or an increase of 26.3% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, Gaming revenues for the quarter would have increased by 21.0%. The increase was primarily the result of product and content improvements to PokerStars Casino, including the introduction of over 150 new casino games since the beginning of the year, foreign exchange fluctuations, and the launch of PokerStars Casino in certain new markets. This was partially offset by, among other things, continued negative operating conditions in Poland due to certain prior regulatory changes in that jurisdiction.


• Betting Revenues - International – Betting revenue for the quarter were $19.6 million, or an increase of 122.2% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, Betting revenues for the quarter would have increased by 106.1%. The increase was primarily the result of increases in Stakes and Betting Net Win Margin. These increases were primarily driven by increased wagering activity due to product and content improvements to BetStars, the launch of BetStars in certain new markets, and the 2018 FIFA World Cup.


• Consolidated Debt and Cash – The total principal amount owing on long-term debt outstanding at the end of the quarter was $2.73 billion with a weighted average interest rate of 4.9%. The Stars Group ended the second quarter of 2018 with approximately $1.05 billion in operational cash on its balance sheet. Following the end of the quarter, The Stars Group completed the Sky Betting & Gaming acquisition and incurred additional debt in connection with the same.

Second Quarter 2018 and Subsequent Operational Highlights

• Quarterly Real-Money Active Uniques (QAUs) – International–QAUs were 2.02 million, which represents a decrease of 5.2% year-over-year. This decrease was primarily the result of The Stars Group's continued strategy of focusing on high-value customers (primarily recreational players), the cessation of online poker operations in Australia and Colombia, and an impaired market in Poland, as offset by the growth and expansion of the casino and betting product offerings. Approximately 1.86 million of such QAUs played online poker during the quarter, a decrease of approximately 7.3% year-over-year, while The Stars Group's online casino offerings had approximately 0.6 million QAUs, an increase of 11.4% year-over-year. The Stars Group's BetStars had approximately 0.2 million QAUs, a 78.3% increase year-over-year.


• Quarterly Net Yield (QNY) – International – QNY was $167, an increase of 21.9% year-over-year, and QNY excluding the impact of year-over-year changes in foreign exchange rates was $161, an increase of 17.5% year-over-year. QNY is a non-IFRS measure.


• Net Deposits – International – Net Deposits were $322 million, an increase of 19.3% year-over-year. The increase was primarily driven by the implementation of the Stars Rewards loyalty program and continued focus on high-value customers (primarily recreational players), foreign exchange fluctuations and continued development of the casino and betting product offerings.


• Stakes and Betting Net Win Margin – International – Stakes were $248.6 million, an increase of 72.2% year-over-year, and Betting Net Win Margin was 7.9%, an increase of 1.8 percentage points year-over-year. The increases in the quarter were primarily due to product and content improvements to BetStars driving incremental QAUs, the launch of BetStars in certain new markets, and the World Cup.


• CrownBet and William Hill Australia – On April 24, 2018, The Stars Group increased its equity interest in CrownBet from 62% to 80% and CrownBet acquired William Hill Australia. The aggregate purchase price under the agreements for these transactions was $435 million (inclusive of $117.7 million to acquire the previously announced 62% equity interest in CrownBet in February 2017), which was paid in a combination of cash and the issuance of approximately 3.1 million newly-issued common shares. As part of the purchase of the additional 18% equity interest in CrownBet, the management team of CrownBet is entitled to an additional payment of up to $182 million in 2020 subject to certain performance conditions and payable in cash, additional common shares or a combination thereof, at The Stars Group's discretion.


• U.S. Sports Betting – On May 14, 2018, the United States Supreme Court struck down, as an unconstitutional exercise of federal power, the nearly 30-year ban on sports betting under the Professional and Amateur Sports Protection Act. The Stars Group believes that the decision by the Court is an important step forward in the regulation of sports betting in the United States and that it is well-positioned to take advantage of any new business and market opportunities as they develop. Currently, more than 20 states have either existing sports betting laws or have pending legislation to legalize or study sports betting. On August 2, 2018, The Stars Group and Resorts Casino Hotel announced the extension of their existing partnership in the New Jersey regulated online gaming market to include online and mobile sports wagering through the BetStars brand alongside the already existing online poker and casino offering available through the PokerStarsNJ brand. On August 10, 2018, The Stars Group and Mount Airy Casino Resort announced a partnership to enter Pennsylvania's online sports wagering and gaming market, where The Stars Group will offer to customers in Pennsylvania its online poker, casino (including slots and tables) and sports wagering products.


• Sky Betting & Gaming – On July 10, 2018, The Stars Group completed the Sky Betting & Gaming acquisition. The aggregate purchase price under the transaction agreements was $4.7 billion, of which $3.6 billion was paid in cash and the remainder was paid through the issuance of approximately 37.9 million newly issued common shares. To finance the cash portion of the purchase price, repay the existing first lien term loans and repay Sky Betting & Gaming's existing long-term debt, The Stars Group used cash on its balance sheet and raised $4.567 billion in first lien term loans, $1.00 billion in senior notes and $621.8 million of net proceeds (before expenses and excluding the overallotment option, which was exercised in full by the underwriters at the end of July) from the issuance of additional common shares in a public equity offering. The Stars Group also obtained a new revolving credit facility of $700.0 million of which it had drawn $100.0 million as of completion of the acquisition.


• Preferred Shares – On July 18, 2018, The Stars Group completed the previously announced mandatory conversion of all of its issued and outstanding convertible preferred shares as of such date and issued approximately 52 million common shares to the holders thereof.

2018 Full Year Guidance

• Full Year Guidance – The Stars Group is updating its 2018 full year financial guidance ranges on a consolidated basis to reflect expected partial year contributions from the Australian acquisitions and the Sky Betting & Gaming acquisition and the impact from changes in The Stars Group's capital structure as a result of such acquisitions, including increases in The Stars Group's long-term debt outstanding and number of common shares issued and outstanding:




• Revenues of between $1.995 and $2.145 billion, as compared to between $1.390 and $1.470 billion;


• Adjusted EBITDA of between $755 and $810 million, as compared to between $625 and $650 million;


• Adjusted Net Earnings of between $485 and $545 million, as compared to between $487 and $512 million;


• Adjusted Diluted Net Earnings per Share of between $1.99 and $2.22, as compared to between $2.33 and $2.471; and


• Capital Expenditures of between $110 million and $150 million.

These unaudited expected results reflect management's view of current and future market and business conditions, including assumptions of (i) expected Betting Net Win Margin of between 8.0% and 10.5%, (ii) continued negative operating conditions in Poland and potential negative operating conditions in Russia resulting from prior regulatory changes, including constraints on payment processing, (iii) no other material regulatory events or investments associated with the entry into new markets, (iv) no impact from the gaming advertising ban in Italy, and (v) no material foreign currency exchange rate fluctuations, particularly against the Euro, Great Britain pound sterling and Australian dollar. Such guidance is also based on a Euro to U.S. dollar exchange rate of 1.17 to 1.00 as compared to 1.20 to 1.00, a Great Britain pound sterling to U.S. dollar exchange rate of 1.32 to 1.00 and an Australian dollar to U.S. dollar exchange rate of 0.74 to 1.00, Diluted Shares of between 241,000,000 and 243,000,000 for the high and low ends of the Adjusted Diluted Net Earnings per Share range, respectively, as compared to between 207,000,000 and 209,000,000, respectively, and certain accounting assumptions.

Capital Expenditures include estimated spend on intangible assets, property, plant and equipment and certain development costs.

Financial Statements, Management's Discussion and Analysis and Additional Information

The Stars Group's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2018 (the "Q2 2018 Financial Statements"), management's discussion and analysis thereon (the "Q2 2018 MD&A"), as well as 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 2018 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

The Stars Group will host a conference call today, August 13, 2018 at 8:30 a.m. ET to discuss its financial results for the second quarter ended 2018 and related matters. 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 13682288. To access the webcast please use the following link: http://public.viavid.com/index.php?id=130894

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 (loss) earnings, which is the nearest IFRS measure:

The table below presents certain items comprising "Other costs" in the reconciliation tables above:

The table below presents a reconciliation of Free Cash Flow to net cash flows from operating activities, which is the nearest IFRS measure: