Amaya Gaming 2015 Q3 Earnings Results
MONTREAL, Amaya Inc. ("Amaya" or the "Corporation") (NASDAQ: AYA; TSX: AYA) Tuesday reported its financial results for the three and nine-month periods ended September 30, 2015. Unless otherwise noted, all references to"$" and "CAD" are to the Canadian dollar, "US$" and "USD" are to the U.S. dollar and "€" and "EUR" are to the Euro.
"Since Amaya's acquisition of its B2C business, we have consistently delivered shareholder value," said David Baazov, Amaya's Chairman and CEO. "And, despite multiple recent global challenges to our core business, we believe we are well positioned to increase our cash flow and continue to grow our customer base in 2016 through a number of initiatives."
Key Q3 2015 Financial Highlights
Revenues increased 8% to approximately $325 million as compared to pro-forma1 revenues for Q3 20142 of approximately $300 million. Online casino comprised approximately 14% of Q3 2015 revenues, with the remainder almost entirely from real-money online poker.
Revenues grew approximately 21% on a constant currency basis3 and normalizing4 for the levy of certain value added taxes (VAT) in European Union jurisdictions in the amount of $5 million, and certain extraordinary events ("Extraordinary Events") with respect to our real-money operations in Portugal, Greece and certain additional smaller markets.
The Extraordinary Events included (i) the temporary suspension of real-money operations in Portugal as of July 2015 in anticipation of a new regulatory and licensing regime, (ii) the impairment of real-money operations in Greece as a result of the severe economic slowdown in that country and the capital controls and banking restrictions imposed by its government in 2015, and (iii) the suspension of operations in approximately 30 other jurisdictions following Amaya's acquisition of the Rational Group in 2014. For Q3 2014, revenues attributable to Portugal, Greece and the other suspended jurisdictions were approximately US$9 million, the significant majority of which were from Portugal and Greece.
B2C poker revenues grew approximately 12% from Q3 2014 on a constant currency basis and normalizing for VAT and the Extraordinary Events.
Adjusted EBITDA5 increased 8% to $141 million, or 43.5% of revenues, as compared to pro-forma Adjusted EBITDA for Q3 2014 of approximately $131 million, or 43.6% of revenues.
Adjusted Net Earnings6 increased 13% to $91 million as compared to pro-forma Adjusted Net Earnings for Q3 2014 of approximately $80 million.
Adjusted Net Earnings per Diluted Share increased 16% to $0.44 as compared to pro-forma Adjusted Earnings per Diluted Share7 for Q3 2014 of approximately $0.38.
Key Q3 2015 Operational Highlights
The Corporation's B2C business added an aggregate of approximately 1.85 million customer registrations during the quarter, with registered customers totalling approximately 97 million as of September 30, 2015, approximately 9% more than a year earlier.
The aggregate number of unique9 customers who played a real-money online offering during the quarter was approximately 2.2 million, of which approximately 94% played on PokerStars, an approximately 3% decline from Q3 2014 driven by the impact of the Extraordinary Events.
Key Q3 2015 and Subsequent Corporate and Other Financial Highlights
On September 30, 2015, the New Jersey Division of Gaming Enforcement (the "DGE") authorized Amaya to operate the PokerStars and Full Tilt brands in New Jersey. The approval follows an unprecedented review by the DGE of Amaya and its acquisition of the PokerStars and Full Tilt businesses in August 2014. Amaya anticipates initially launching in New Jersey in the first half of 2016 through its agreement with Resorts Casino Hotel in Atlantic City, New Jersey.
Amaya was granted additional gaming licenses and approvals in Romania, Ireland, and the Province of Quebec, Canada.
In August 2015, Amaya completed a debt refinancing (the "Refinancing") that resulted in the repayment of approximately US$590 million of the Corporation's USD second lien term loan. The Corporation funded this repayment, as well as fees and related costs, through a combination of an approximately US$315 million increase of its existing USD first lien term loan, approximately €92 million increase of its existing EUR first lien term loan and approximately US$195 million in cash.
All previously announced B2B business divestitures were completed as of July 31, 2015 for aggregate gross cash proceeds, less transaction costs, of approximately $594 million recorded in 2015. Through these proceeds combined with cash flow generated from its continuing operations, Amaya:
repaid approximately $690 million of outstanding long-term debt; and
repurchased and canceled an aggregate of approximately 1.46 million common shares at a cost of approximately $45.5 million ($9.9 million of which were repurchased and canceled during the quarter) pursuant to its TSX-approved normal course issuer bid, which remains in effect.
Since the acquisition of its B2C business on August 1, 2014, Amaya has reduced total long-term debt from approximately US$3.134 billion with a weighted average interest rate of 6.38% to approximately US$2.603 billion with a weighted average interest rate of 5.28%. As a result of the Refinancing and the repayment of debt, Amaya expects that its annualized interest expenses will reduce by approximately US$62 million to approximately US$136 million. The Corporation has generated approximately US$364 million in operating cash flow from continuing operations over the past 12 months.
Amaya will today file a preliminary short form base shelf prospectus (the "Base Shelf") with the securities commissions or similar authorities in all provinces and territories in Canada and a corresponding shelf registration statement on Form F-10 (the "F-10") with the U.S. Securities and Exchange Commission (the "SEC") under the U.S.-Canada Multijurisdictional Disclosure System.
The Base Shelf and corresponding F-10, when made final or effective, will allow for primary and secondary offerings of up to US$3 billion of common shares, preferred shares, debt securities, subscription receipts, warrants and units, or any combination thereof, from time to time over a 25-month period. The specific terms of any offering of securities will be set forth in a shelf prospectus supplement. Amaya filed the Base Shelf and F-10 to maintain financial flexibility, including efficient access to new capital from time to time, but has no immediate intentions to undertake an offering.
2015 Full Year Financial Guidance
Amaya is revising its previously announced 2015 full-year financial guidance provided in its earnings release on May 14, 2015 for the quarter ended March 31, 2015 and reaffirmed in its earnings release on August 14, 2015 for the quarter ended June 30, 2015,
"The general strengthening of the U.S. dollar relative to certain foreign currencies, primarily the Euro, has resulted in an approximate 19% decline in the purchasing power of our customer base and has had a significant negative impact on our revenues, higher than we previously anticipated," said Mr. Baazov.
"Other factors negatively impacting our previously anticipated revenues included a recent strategic decision to delay the rollout of significant aspects of our new online sportsbook offering across geographies while we enhance the consumer product experience and complete the product offering, as well as the temporary cessation of our operations in Portugal and Greece. Due to this anticipated decline in revenues, we are also projecting less Adjusted EBITDA and Pro Forma Adjusted Net Earnings than our previous guidance."
1 All 2014 pro-forma figures in this release assume that the acquisition of Amaya's B2C business occurred as of the first day of such financial period. All figures in this release are unaudited.
2 Amaya acquired its B2C business on August 1, 2014, therefore as it relates to the three and nine-month periods ended September 30, 2014 Amaya's unaudited interim condensed consolidated financial statements for the period ended September 30, 2015 (the "Q3 Financials") only include results from the B2C business for the months of August 2014 and September 2014.
3 The general strengthening of the USD relative to certain foreign currencies (primarily the Euro) from the three and nine-month periods ended September 30, 2014 to the same periods in 2015 had an unfavorable impact on the Corporation's revenue. For each jurisdiction in which the Corporation's B2C business operates, 2015 dollar figures are adjusted to their 2014 constant currency equivalent by using a factor that is derived from the percentage change in the exchange rate of the applicable jurisdiction's currency relative to USD during the comparative period. The sum of each such equivalent is then compared to International Financial Reporting Standards ("IFRS") figures for the applicable comparative financial period in 2014. During the quarter, the Corporation estimates the decline in purchasing power of its customer base was a result of an average 19% decline in the value of its customers' local currencies relative to USD, which was partially offset by the translation into its CAD reporting currency.
4 Normalizing as defined by the Corporation means, in the case of VAT, adding back the particular dollar amount at issue to the referenced financial measure, and, in the case of the Extraordinary Events, excluding the particular dollar amount at issue from the referenced financial measure for such Extraordinary Events for all periods referenced.
5 Adjusted EBITDA as defined by the Corporation means net earnings (loss) from continuing operations before interest and financing costs (net of interest income), income taxes, depreciation and amortization, stock-based compensation, restructuring and other non-recurring costs. Adjusted EBITDA is a non-IFRS and non-U.S. GAAP measure. Reconciliation to net income from continuing operations is included in this release.
6 Adjusted Net Earnings (Loss) as defined by the Corporation means net earnings (loss) from continuing operations before interest accretion, amortization of intangible assets resulting from purchase price allocation following acquisitions, stock-based compensation, foreign exchange, and other non-recurring costs. Adjusted Net Earnings (Loss) per Diluted Share as defined by the Corporation means Adjusted Net Earnings (Loss) divided by Diluted Shares. Diluted Shares as defined by the Corporation means the Corporation's common shares on a fully diluted basis, including options, warrants and convertible preferred shares, using a denominator of 208 million shares, which is the assumption used in the Corporation's full year 2015 guidance. Adjusted Net Earnings (Loss) and Adjusted Net Earnings (Loss) per Diluted Share are non-IFRS and non-U.S. GAAP measures. Reconciliation to net income from continuing operations is included in this release.
7 Assumes that each of current income taxes, depreciation and amortization (net of amortization of purchase price allocation intangibles), and interest (net of interest accretion) in Q3 2015 was the same as in Q3 2014.
8 Continuing operations do not include Amaya's divested B2B businesses, which were classified as discontinued operations during the relevant financial periods. See the Q3 Financials and the related management's discussion and analysis for the three and nine-month periods ended September 30, 2015. All 2014 figures in this financial summary are presented on a pro forma basis. The USD to CAD exchange rates used in this financial summary are as follows: Q3 2015 – 1.3066; YTD 2015 – 1.2598; Q3 2014 – 1.0889; YTD 2014 – 1.0942, and as at September 30, 2015 – 1. 3345.
9 Unique as defined by the Corporation means a customer who played on one of the platforms and excludes any duplicate counting.
10 Pro Forma Adjusted Net Earnings as defined by the Corporation means Adjusted Net Earnings that is pro forma as if the divestiture of the entire B2B business occurred at December 31, 2014. Pro Forma Adjusted Net Earnings is a non-IFRS and non-U.S. GAAP measure. Diluted Share count used is 208 million.
11 Adjusted Net Leverage Ratio as defined by the Corporation means Adjusted Net Debt divided by Adjusted EBITDA. Adjusted Net Debt as defined by the Corporation means total financial leverage minus cash (with cash including funds in excess of working capital requirements set aside for the deferred payment that is in Restricted Cash in the Q3 Financials) plus current investments less customer deposits liabilities, and after giving effect to the divestiture of the entire B2B business (which was anticipated as it related to the previous guidance). This does not assume potential cash from the exercise of warrants with maturity dates extending beyond 2015. Adjusted Net Leverage Ratio and Adjusted Net Debt are non-IFRS and non-U.S. GAAP measures.
12 The Corporation estimates that its customers compensate for the reduced purchasing power of their local currencies relative to the USD caused by foreign exchange fluctuations by depositing greater amounts in their respective local currencies.
