Segmental Information | SEGMENTAL INFORMATION Segments are reported in a manner consistent with the internal reporting provided to the CODM. The Corporation’s CODM consists of its Chief Executive Officer, and Chief Financial Officer as this group is responsible for allocating resources to, and assessing the performance of, the operating segments of the Corporation. The segmentation reflects the way the CODM evaluates performance of, and allocates resources within, the business. The CODM considers the Corporation’s business from both a geographic and product offering or lines of operation perspective. For the years ended December 31, 2019 and 2018 , the Corporation had three reportable segments, as applicable: International, United Kingdom and Australia, as well as a Corporate cost center. Revenue within these operating segments is further divided into the Poker, Gaming, Betting and Other lines of operation, as applicable. The CODM receives geographic and lines of operation revenue information throughout the year for the purpose of assessing their respective performance. Certain costs are included in Corporate. “Corporate” in itself is not a reporting segment, but it comprises costs that are not directly allocable to any of the operating segments or relate to a corporate function (i.e., tax and treasury). Further, each reporting segment incurs certain costs, which are not segregated among major lines of operations within each reporting segment as they share the same office infrastructure, workforce and administrative resources. The Corporation cannot develop or produce reports that provide the true costs by major lines of operations within each reporting segment without unreasonable effort or expense. The primary measure used by the CODM for the purpose of decision making and/or evaluation of a segment is Adjusted EBITDA. The Corporation defines Adjusted EBITDA as net earnings before financial expenses, income tax expense (recovery), depreciation and amortization, stock-based compensation, restructuring, net earnings (loss) on associate and certain other items as set out in the reconciliation table below. However, the CODM also uses other key measures as inputs, including, without limitation, revenue and capital expenditures, to supplement the decision-making process. Segmental information for the year ended December 31, 2019 and December 31, 2018 : Year Ended December 31, 2019 In thousands of U.S. Dollars International United Kingdom Australia Corporate Intercompany eliminations * Consolidated Revenue 1,312,365 946,679 274,414 — (5,010 ) 2,528,448 Poker 781,637 11,647 — — — 793,284 Gaming 427,316 364,983 — — — 792,299 Betting 72,561 528,110 270,267 — — 870,938 Other 30,851 41,939 4,147 — (5,010 ) 71,927 Adjusted EBITDA (**) 604,851 324,633 44,358 (52,717 ) — 921,125 Net financing charges — — — 202,534 — 202,534 Depreciation and amortization 159,895 241,283 36,703 745 — 438,626 Capital expenditures 91,209 32,095 17,197 259 — 140,760 Year Ended December 31, 2018 *** In thousands of U.S. Dollars International United Kingdom Australia Corporate Intercompany eliminations * Consolidated Revenue 1,440,177 394,131 196,930 — (2,000 ) 2,029,238 Poker 886,628 5,929 — — — 892,557 Gaming 428,364 157,482 — — — 585,846 Betting 79,117 215,921 196,101 — — 491,139 Other 46,068 14,799 829 — (2,000 ) 59,696 Adjusted EBITDA (**) 703,342 102,107 21,571 (46,071 ) — 780,949 Net financing charges — — — 371,086 — 371,086 Depreciation and amortization 144,304 108,879 29,476 147 — 282,806 Capital expenditures 81,189 18,971 12,386 1,182 — 113,728 _____________________________ * For the year ended December 31, 2019 , the Corporation excluded from its consolidated revenue $5.0 million of Other revenue included in the United Kingdom segment related to certain non-gaming related transactions with the International segment. A corresponding exclusion in the consolidated results for that period is recorded to Sales and marketing expense in the International segment. For the year ended December 31, 2018 , the Corporation excluded from its consolidated revenue $2.0 million of Other revenue included in the International segment related to certain non-gaming related transactions with the United Kingdom segment. A corresponding exclusion in the consolidated results for that period is recorded to Sales and marketing expense in the United Kingdom segment. ** Adjusted EBITDA is used internally by the CODM when analyzing underlying segment performance. *** Certain amounts were reclassified in the comparative periods. See note 2 . A reconciliation of Adjusted EBITDA to Net earnings (loss) is as follows: Year Ended December 31, In thousands of U.S. Dollars 2019 2018 ¹ Consolidated Adjusted EBITDA 921,125 780,949 Add (deduct) the impact of the following: Acquisition-related costs, deal contingent forward expenses and certain other costs related to the Combination 2 (27,165 ) (115,569 ) Stock-based compensation 3 (18,842 ) (12,806 ) Gain (loss) from investments 2,520 (1,667 ) Impairment of intangible assets (3,931 ) (6,223 ) Other costs (170,882 ) (101,754 ) Total adjusting items (218,300 ) (238,019 ) Depreciation and amortization (438,626 ) (282,806 ) Operating income 264,199 260,124 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 ) _____________________________ 1 Certain amounts were reclassified in the comparative periods. See note 2 . 2 Acquisition-related costs, deal contingent forward expenses and certain other costs related to the Combination are excluded from Adjusted EBITDA as management believes these expenses are not representative of the underlying operations for the following reasons: – Acquisition-related costs include legal and professional fees incurred in connection with the SBG Acquisition and Australia Acquisitions. – Costs associated with the BetEasy Minority Acquisition (as defined below) include costs incurred in connection with employee retention programs implemented by management to manage certain personnel-related risks associated with the BetEasy Minority Acquisition, and a contractual payment to a third-party supplier of pricing services to BetEasy due upon the completion of the BetEasy Minority Acquisition . – Deal contingent forward expenses include costs associated with forward contracts that were entered into to hedge foreign exchange risk associated with the purchase price of the SBG Acquisition and Australia Acquisitions. – Other costs related to the Combination include legal and professional fees and costs incurred in connection with employee retention programs implemented by management to manage certain personnel-related risks associated with the same. 3 Stock-based compensation expense excluded from Adjusted EBITDA primarily due to its discretionary nature. A reconciliation of certain items comprising “Other costs” in the Adjusted EBITDA reconciliation table above: Year Ended December 31, 2019 In thousands of U.S. Dollars 2019 2018 Integration costs of acquired businesses 19,753 45,597 Financial expenses 1,733 446 Restructuring expenses 1 37,474 8,827 AMF, foreign payments and other investigation and related professional fees 2 18,896 6,673 Lobbying (US and Non-US) and other legal expenses 3 14,909 16,194 Professional fees in connection with non-core activities 4 21,889 4,578 Austria gaming duty — (3,679 ) Acquisition of market access rights 22,500 20,661 Legal settlement 5 32,500 — Other 1,228 2,457 Other costs 170,882 101,754 _____________________________ 1 Restructuring expenses relate to certain operational and staff restructuring programs implemented following the Australian Acquisitions and the SBG Acquisition, and certain of the Corporation’s recent strategic cost savings initiatives (i.e., referred to by the Corporation as “operational excellence” or “operational efficiency” programs). Management does not consider such expenses to be part of its ongoing core operating activities or expenses. Following and as a result of the restructuring programs and efforts to achieve expected cost synergies related to the Acquisitions in the United Kingdom and Australia segments, during the year ended December 31, 2019, the Corporation reassessed its fixed-cost base within the International segment and Corporate cost center and implemented an operational excellence program to optimize the same, including a reduction in headcount and the relocation of certain roles across and within applicable geographies. As a result, costs related to this program that are excluded from Adjusted EBITDA for the year ended December 31, 2019 include (i) $23.9 million of accrued termination payments recognized under IAS 37 and IAS 19, Employee benefits and (ii) $13.6 million for salaries and associated compensation relating to roles that are either being made redundant or that are expected to be relocated (for relocations, to the extent that such salaries and associated compensation exceeds or will exceed the same in the new location for the respective relocated roles). The Corporation expects to continue excluding such costs from Adjusted EBITDA through the respective termination or relocation dates of the impacted personnel. 2 Legal and professional fees related to the previously disclosed Autorité des marchés financiers ("AMF"), foreign payments and other investigation matters. On June 6, 2019, the AMF advised the Corporation that it had closed its investigation and no charges will be laid against the Corporation or any of its current directors or officers in connection with the previously reported AMF investigation and related matters. 3 The Corporation excludes certain lobbying and legal expenses in jurisdictions where it is actively seeking licensure or similar approval because management believes that the Corporation’s incremental cost of these lobbying and legal expenses in such jurisdictions is generally higher than its peers given liabilities and related issues primarily stemming from periods prior to the acquisition of the Stars Interactive Group in 2014 or from matters not directly involving the Corporation or its current business. 4 Professional fees in connection with non-core activities are excluded from Adjusted EBITDA as management believes these expenses are not representative of the underlying operations. Such professional fees include those related to litigation matters, incremental accounting and audit fees incurred in connection with the integration of the Acquisitions, including as it relates to internal controls with respect to the same, and the previously announced partnership with FOX Sports and transactions in connection with obtaining and securing potential market access to certain U.S. states in which the Corporation currently does not operate. 5 For additional information see notes 8 and 28 . The distribution of the Corporation’s assets and liabilities by reporting segment is as follows: International United Kingdom Australia Corporate Total Total assets as at December 31, 2019 5,083,015 5,468,613 489,605 234,549 11,275,782 Total liabilities as at December 31, 2019 673,016 705,168 499,170 4,878,985 6,756,339 Total assets as at December 31, 2018 5,248,115 5,430,110 510,805 76,508 11,265,538 Total liabilities as at December 31, 2018 623,096 715,398 550,562 5,223,082 7,112,138 The distribution of some of the Corporation’s non-current assets (goodwill, intangible assets and property and equipment) by geographic region is as follows: As at December 31, In thousands of U.S. Dollars 2019 2018 Geographic Area Canada 85,302 66,830 United Kingdom 5,188,175 5,191,994 Isle of Man 4,206,424 4,346,599 Australia 442,024 456,422 Malta 57,069 7,469 Other licensed or approved jurisdictions 59,432 24,534 10,038,426 10,093,848 The Corporation also evaluates revenue performance by geographic region based on the primary jurisdiction where the Corporation is licensed or approved to offer, or offers through third-party licenses or approvals, its products and services. The following tables set out the proportion of revenue attributable to each gaming license or approval (as opposed to the jurisdiction where the customer was located) that either generated a minimum of 5% of total consolidated revenue for the year ended December 31, 2019 or 2018 , or that the Corporation otherwise deems relevant based on its historical reporting of the same or otherwise: Year Ended December 31, 2019 In thousands of U.S. Dollars International United Kingdom Australia Intercompany eliminations * Total Geographic Area United Kingdom 75,674 924,787 — (5,010 ) 995,451 Malta 557,423 13 — — 557,436 Australia — 158 274,414 — 274,572 Italy 165,807 233 — — 166,040 Spain 108,439 152 — — 108,591 Isle of Man 99,504 — — — 99,504 Other licensed or approved jurisdictions 305,518 21,336 — — 326,854 1,312,365 946,679 274,414 (5,010 ) 2,528,448 Year Ended December 31, 2018 In thousands of U.S. Dollars International United Kingdom Australia Intercompany eliminations * Total Geographic Area United Kingdom 73,969 388,421 — — 462,390 Malta 497,126 — — — 497,126 Australia — 190 196,930 — 197,120 Italy 156,946 1,144 — — 158,090 Spain 121,776 86 — — 121,862 Isle of Man 377,702 — — (2,000 ) 375,702 Other licensed or approved jurisdictions 212,658 4,290 — — 216,948 1,440,177 394,131 196,930 (2,000 ) 2,029,238 _____________________________ * For the year ended December 31, 2019 , the Corporation excluded from its consolidated revenue $5.0 million of Other revenue included in the United Kingdom segment related to certain non-gaming related transactions with the International segment. A corresponding exclusion in the consolidated results for that period is recorded to Sales and marketing expense in the International segment. For the year ended December 31, 2018 , the Corporation excluded from its consolidated revenue $2.0 million of Other revenue included in the International segment related to certain non-gaming related transactions with the United Kingdom segment. A corresponding exclusion in the consolidated results for that period is recorded to Sales and marketing expense in the United Kingdom segment. |