Earnings out...strong growth, strong earnings... The Stars Group Reports Fourth Quarter and Full Year 2017 Results; Provides 2018 Full Year Guidance
TORONTO, March 14, 2018 /CNW/ - The Stars Group Inc. (NASDAQ: TSG; TSX: TSGI) today reported its financial results for the fourth quarter and year ended December 31, 2017 and provided 2018 full year financial guidance ranges, as well as certain additional highlights and updates. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.
"2017 marked our evolution and transformation into The Stars Group," said Rafi Ashkenazi, Chief Executive Officer. "We maintained our global dominance in online poker, with the business experiencing year-over-year growth in that vertical, our online casino has already become one of the largest in the world since its launch in 2014, and our emerging online sportsbook not only recorded meaningful growth in turnover and revenues, but started to become a secondary customer acquisition channel."
"During the year, we strengthened our core senior management team, delivered another year of record revenues, significantly deleveraged and continued to strengthen our balance sheet, all while investing in marketing, growth initiatives and technology infrastructure to support the long-term growth of our business," added Ashkenazi. "In 2018, we are continuing to execute on our growth initiatives, including through geographic expansion, inorganic growth, and improving our focus on and understanding of our customers, and we are beginning to realize our goal of becoming the world's favorite iGaming destination."
Fourth Quarter and Full Year 2017 Financial Summary(1)
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| (1) For important information on The Stars Group's non-IFRS measures, see below under "Non-IFRS and Non-U.S. GAAP Measures" and the tables under "Reconciliation of Non-IFRS Measures to Nearest IFS Measures". The financial information presented in this news release was derived from the 2017 Annual Financial Statements (as defined below). |
Fourth Quarter and Full Year 2017 and Subsequent Financial Highlights
- Revenues – Revenues for the quarter and year increased approximately 16.1% and 13.6% year-over-year, respectively. Excluding the impact of year-over-year changes in foreign exchange rates, revenues for the quarter and year would have increased by approximately 7.8% and 10.5%, respectively. Real-money online poker revenues and real-money online casino and sportsbook combined revenues represented approximately 65.1% and 31.2% of revenues for the quarter, respectively, and 66.9% and 29.3% for the year, respectively, as compared to approximately 70.0% and 25.8% and 73.2% and 22.9% for the applicable prior year periods.
- Poker Revenues – Real-money online poker revenues for the quarter were $234.4 million, or an increase of approximately 7.9% year-over-year, and $877.3 million for the year, or an increase of approximately 3.7% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, real-money online poker revenues would have increased by approximately 1.9% and 0.9% for the quarter and year, respectively. In 2017, The Stars Group saw a positive impact from its previously announced strategy of focusing on recreational players and the introduction of Stars Rewards, which helped counter certain regulatory headwinds, including the cessation of operations in certain markets, such as Australia and Colombia.
- Casino & Sportsbook Revenues – Real-money online casino and sportsbook combined revenues for the quarter were $112.5 million, or an increase of approximately 40.3% year-over-year, and $384.0 million for the year, or an increase of approximately 45.4% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, real-money online casino and sportsbook combined revenues would have increased by approximately 28.9% for the quarter and 42.2% for the year. In 2017, growth in real-money online casino and sportsbook combined revenues was driven primarily by a combination of geographic expansion and product improvements.
- Debt and Cash – Total long-term debt outstanding at the end of the year was $2.45 billion with a weighted average interest rate of 4.7%. As previously disclosed, on March 3, 2017, The Stars Group announced the successful repricing and retranching of its U.S. dollar and Euro denominated first lien term loans resulting in the reduction of the applicable interest rate margins by 50 basis points, removing the Euribor floor on the Euro denominated first lien term loans, and raising €100 million of incremental Euro denominated first lien debt and using the same to reduce its U.S. dollar denominated first lien debt. Throughout 2017, The Stars Group also prepaid without penalty approximately $115 million under its second lien term loan using cash flow from operations, reducing the outstanding principal balance of such loan to $95 million. The Stars Group ended 2017 with approximately $283 million in operational cash on its balance sheet.
- Deferred Purchase Price – In May 2017, The Stars Group made its final payment on the outstanding balance of the $400 million deferred purchase price for its acquisition of Stars Interactive Group (formerly known as the Rational Group) in August 2014.
Fourth Quarter 2017 and Subsequent Operational Highlights
- Quarterly Real-Money Active Uniques (QAUs) – Total QAUs were approximately 2.17 million, a decrease of approximately 7.2% year-over-year primarily led by the Corporation's strategy of focusing on positive return customer relationship management initiatives to attract high-value, net-depositing customers (primarily recreational players) and the cessation of operations or difficult operating conditions in certain markets including Australia, Columbia and the Czech Republic. Approximately 2.03 million of such QAUs played online poker during the quarter, a decrease of approximately 9.3% year-over-year, while The Stars Group's online casino offerings had approximately 607,000 QAUs, a 0.2% increase year-over-year, which The Stars Group continues to estimate as one of the largest active casino player bases among its competitors. The Stars Group's emerging online sportsbook offerings had approximately 313,000 QAUs, a 26.9% increase year-over-year.
- Quarterly Net Yield (QNY) – Total QNY was $160, an increase of 25.6% year-over-year, and QNY excluding the impact of year-over-year changes in foreign exchange rates was $154, an increase of 21.0% year-over-year. QNY is a non-IFRS measure.
- Net Deposits – Net Deposits were $326.9 million, an increase of 15.0% year-over-year.
- Customer Registrations – Customer Registrations increased by 2.1 million during the quarter.
- Stars Rewards – In July 2017, The Stars Group launched the Stars Rewards integrated cross-vertical loyalty program, which is focused on customer engagement, retention and experience. The Stars Group believes that Stars Rewards has enhanced and will continue to enhance the player experience as it introduces new ways of earning rewards that are intended to be more exciting for its recreational players and distributes the rewards based on, among other things, player contributions to the overall ecosystem. To date, approximately 90% of customers opt into the program on a daily basis and engagement is strong with approximately 97% of rewards claimed. The Stars Group believes the program has positively impacted the overall product ecosystem across verticals and continues to receive positive feedback from most players.
- CrownBet and William Hill Australia – As previously disclosed on February 27, 2018, The Stars Group acquired a 62% equity interest in CrownBet Holdings Pty Limited, an Australian-based online sportsbook, from Crown Resorts Limited for an aggregate amount of $117.7 million using cash on The Stars Group's balance sheet. On March 6, 2018, The Stars Group also entered into agreements to increase its equity interest in CrownBet from 62% to 80% and for CrownBet to acquire William Hill Australia Holdings Pty Ltd. ("William Hill Australia"), an Australian-based online sportsbook. The aggregate purchase price for both transactions will be approximately $315 million, of which $234 million will be payable in cash for William Hill Australia and the remainder will be payable in approximately 3.1 million newly-issued common shares of The Stars Group. The management team of CrownBet will be entitled to an additional payment of up to $182 million in 2020 subject to certain performance conditions and payable in cash, additional common shares of The Stars Group or a combination thereof, at The Stars Group's discretion. To finance the cash portion of the purchase price for the transactions, The Stars Group obtained committed financing for a $325 million incremental first lien term loan. The Stars Group currently expects the transactions to close in April 2018. Mr. Matthew Tripp, CrownBet's Chief Executive Officer, will remain in his position and continue to operate the combined business in Australia. Under the transaction agreements, The Stars Group is entitled to appoint a majority of the directors on the board of directors of CrownBet.
- Nominee Agreement and Appointment of Board Observer – As previously disclosed on January 10, 2018, The Stars Group entered into an agreement with Mr. Tang Hao and his affiliated entity Discovery Key Investments Limited, which based on publicly available information currently hold approximately 17.9% of the outstanding common shares of The Stars Group. In connection with that agreement, Mr. Melvin Zhang was appointed as an observer to the board of directors of The Stars Group as a nominee of Mr. Tang. Mr. Zhang will serve as an observer until such time as he and Mr. Tang have received certain licenses and approvals from certain of The Stars Group's gaming regulatory authorities, at which point he will join the board of directors as a director. Also pursuant to the agreement, Mr. Tang is subject to certain restrictions on director nominations and share ownership, including certain standstill restrictions with respect to acquiring greater than 20% of the outstanding common shares of The Stars Group.
2018 Full Year Guidance
- Full Year Guidance – The Stars Group currently expects the following 2018 full year financial guidance ranges:
- Revenues of between $ $1,390 and $1,470 million;
- Adjusted EBITDA of between $625 and $650 million;
- Adjusted Net Earnings of between $487 and $512 million; and
- Adjusted Net Earnings per Diluted Share of between $2.33 and $2.47.
These unaudited expected results reflect The Stars Group's existing business and exclude the recently announced acquisition of a majority interest in CrownBet and the proposed acquisition of William Hill Australia. These expectations also reflect management's view of current and future market and business conditions, including assumptions of (i) potential negative operating conditions in Russia expected to begin in May 2018, (ii) no other material regulatory events, and (iii) no material foreign currency exchange rate fluctuations, particularly against the Euro. Such guidance is also based on a Euro to U.S. dollar exchange rate of 1.20 to 1.00, Diluted Shares of between 207,000,000 and 209,000,000 for the high and low ends of the Adjusted Net Earnings per Diluted Share range, respectively, and certain accounting assumptions.