CryptoLogic Limited
TSX : CRY
TSX : CXY
NASDAQ : CRYP
LSE : CRP

CryptoLogic Limited

August 08, 2008 02:01 ET

CryptoLogic Reports Q2 Results; Stage Set for Growth

Signings of seven new customers in year to date underpins prospects for 2008 and 2009

DUBLIN, IRELAND--(Marketwire - Aug. 8, 2008) - CryptoLogic Limited (TSX:CRY)(TSX:CXY)(NASDAQ:CRYP)(LSE:CRP), a world leader in Internet gaming software, today reported its financial results for the three months ending June 30, 2008, posting modest revenue growth over the same period a year ago. The company noted that its success in signing five new customers in the quarter and two more today underpins its positive outlook for 2008 and 2009.

CryptoLogic grew its revenue in the seasonally slow quarter to $16.8 million (Q2 2007: $16.2 million), driven by the company's core European casino business. The result was achieved notwithstanding the massive popularity of the Euro 2008 football championships, which reduced traffic on licensees' Internet casino and poker sites.

The company posted a reduced loss of $1.5 million (Q2 2007: $2.6 million), or $0.10 per fully diluted share (Q2 2007: $0.19) . The second quarters of 2007 and 2008 produced the software provider's only quarterly losses in recent years, reflecting significant expenses in both periods.

"While seasonality made this a more challenging quarter, at CryptoLogic we remain committed to our goals - and confident in our growth," said Brian Hadfield, CryptoLogic's President and CEO. "While modest growth is encouraging, aggressive growth is our goal. With an upgraded technology platform and five new customers signed in the last quarter, CryptoLogic's challenge is to execute with excellence - and that should lead to significant revenue and earnings growth from both Europe and Asia."

FINANCIAL HIGHLIGHTS:

Revenue

- CryptoLogic's revenue was up 3.4% to $16.8 million over the same period a year ago (Q2 2007: $16.2 million), driven by the company's Internet casino business.

Expenses

- Operating expenses were $13.2 million, up $1.8 million from a year ago but down $1.3 million from the first quarter of 2008. While the quarter featured lower compensation costs than Q1 2008, foreign exchange movements of $0.8 million increased this expense when compared to the prior quarter.

- General and administrative expenses were up $1.9 million over Q2 2007 due to increased consulting and professional fees. This included costs of $400,000 to protect the company's intellectual property, which CryptoLogic expects to recover in the future.

Net earnings

- The company recorded a loss of $1.5 million, or $0.10 per fully diluted share (Q2 2007: loss of $2.6 million or $0.19 per fully diluted share).

Balance sheet

- CryptoLogic's working capital at June 30, 2008 was $63.3 million or $4.54 per diluted share (March 31, 2008: $68.3 million or $4.90 per diluted share).

- Net cash was $64.4 million on June 30, 2008, down $16.6 million since March 31, 2008 due primarily to increased tax payments, timing of receipts, dividend payments, stock repurchases of $0.7 million, and the company's investment in Mahjong Time.

Dividend

- On August 7, 2008, CryptoLogic declared a dividend of $0.12 per share, unchanged from a year ago.

OPERATIONAL HIGHLIGHTS:

Leadership through innovation

- CryptoLogic launched seven exclusive new casino games, highlighted by the Internet's first slot version of the world-famous Street Fighter II arcade game.

- The company completed development on a new suite of casino games, including titles featuring the famed Marvel Super Hero Sub-Mariner and 4 Deck Multi Hand Video Blackjack, a patent-pending product developed exclusively by CryptoLogic.

- CryptoLogic completed development on enhancements to its Internet poker software to enable players to host their own tournaments and customize their Internet gaming experience.

Expansion: Five new customers in Q2, seven in year to date

- In May, CryptoLogic announced new licensee arrangements with 888.com, 0Poker.com, Maharajah Club and Khel Galli.com. The latter is the company's first major Asian customer, targeting the high-growth Indian market. Implementations of OPoker, Maharajah Club and Khel Galli have now been completed, and these sites will begin producing revenue for CryptoLogic in the third quarter.

- In June, the company became the sole provider of Internet casino and poker software to Betjacks, an Internet gaming site that will target the Irish, UK, South African and Canadian markets following its launch this fall.

- Today, CryptoLogic announced the signings of three-year contracts with Sky Betting & Gaming, part of BSkyB Group plc (BSkyB), the UK's leading entertainment brand, and Gaming Media Group, owner of The Poker Channel®, Europe's largest dedicated gaming television network.

Diversification: New investments in Asia

- CryptoLogic announced a strategic investment in Mahjong Time, an innovative provider of online Mahjong software and turnkey solutions. Mahjong has a global following of more than 600 million players, creating an attractive opportunity for online gaming growth.

- The company also announced a minority interest in South Korea's Mobilebus Inc., one of Asia's fastest-growing mobile and PC game developers and publishers.

FINANCIAL PERFORMANCE

Total revenue: CryptoLogic's revenue was up 3.4% to $16.8 million over the same period a year ago (Q2 2007: $16.2 million). This growth came from the casino side of the business.

Revenue was down to $16.8 million from the $19.3 million achieved in the first quarter of 2008, reflecting various factors: less wagering by players due to the massive popularity of the Euro 2008 football championships and the unseasonably warm weather in many key markets; some unusually large jackpot wins by players; and the reduction of a $1 million provision for royalty payments in Q1 that, as expected, did not recur in Q2.

CryptoLogic expects revenue growth in the second half of 2008 as the company's new licensees come on stream, particularly in the fourth quarter, when weather turns colder and Internet gaming activity typically rises. CryptoLogic also expects modest but fast-growing revenue from Asia, and healthy casino revenue due to the launch of new games.

CryptoLogic has embarked on a strategy to enhance poker liquidity through new licensees and potential acquisitions. The launch of OPoker and Maharajah Club in July should have a positive impact on revenue, as should the other new customers announced previously, and those in the company's robust new business pipeline.

Expenses: Operating expenses were $13.2 million, up $1.8 million from a year ago but down $1.3 million from the first quarter of 2008. While the quarter featured lower compensation costs than Q1, 2008, foreign exchange movements of $0.8 million increased this expense from the prior quarter. General and administrative expenses were up $1.9 million over Q2 2007 due principally to higher-than-anticipated professional fees for tax, audit and Sarbanes-Oxley compliance. This also includes costs of $400,000 to protect the company's intellectual property, which CryptoLogic expects to recover in the future.

Earnings and Earnings per Diluted Share: The company recorded a loss of $1.5 million, or $0.10 per fully diluted share (Q2 2007: loss of $2.6 million or $0.19 per fully diluted share). The loss in the current quarter was due primarily to seasonal impacts on revenue, increased general and administrative costs, a higher effective tax rate and decreased interest income.

Balance Sheet and Cash Flow: The company's working capital at June 30, 2008 was $63.3 million or $4.54 per diluted share (March 31, 2008: $68.3 million or $4.90 per diluted share). Net cash was $64.4 million (comprising cash and cash equivalents, restricted cash, and security deposits) on June 30, 2008, down $16.6 million since March 31, 2008 due to large tax payments, two dividend payments, additional consideration paid for the purchase of casino.co.uk, stock repurchases and the company's investment in Mahjong Time.

OUTLOOK

While the second quarter proved to be challenging, CryptoLogic management continues to believe the company is on track for significant growth in 2009, for the following reasons:

- In just five months, CryptoLogic's new leadership has signed seven new customers, three of whom are now up and running - producing a growing revenue stream for CryptoLogic in Q3, Q4 and beyond.

- The company is implementing a four-pronged strategy to enhance liquidity in its licensees' shared poker room through new poker licensees, system enhancements, potential acquisitions and collaboration with other Internet poker networks.

- CryptoLogic is widely acknowledged as a leader in Internet casino software, and is releasing innovative new products more quickly than ever before.

- The company has made significant operational improvements, including adding new payment options, enhancing WagerLogic's call centre capabilities, improving search engine optimization and reorganizing development and operations functions.

- CryptoLogic's Asian investments will earn modest revenue in 2008, with significant 2009 growth potential from multiple platforms in very large markets such as China, Singapore, India and Korea.

2008 Second Quarter Analyst Call

CryptoLogic's CEO and CFO will report on the company's Q2 earnings in a conference call scheduled for today at 8:30 a.m. Eastern time (1:30 p.m. GMT).



Local Dial-In Number: 416-695-6616
Toll Free North America: 1-877-677-0837
Toll Free International: (Country Code) 800-6578-9898


To participate, please call five to ten minutes prior to the 8:30 a.m. start of the teleconference. This conference call will be recorded and available for replay approximately one hour after the completion of the call, up until midnight (EST time) August 15, 2008. To listen to the replay, please dial 416-695-5800 or 1-800-408-3053, passcode 3266625#. A transcript of the call will also be made available on CryptoLogic's website at www.cryptologic.com under Investor Information.

About CryptoLogic® (www.cryptologic.com)

Focused on integrity and innovation, CryptoLogic Limited is a world-leading, blue-chip public developer and supplier of Internet gaming software. Its leadership in regulatory compliance makes it one of the very few companies with gaming software that has been certified to strict standards similar to land-based gaming.

WagerLogic Limited, a wholly-owned subsidiary of CryptoLogic, is responsible for the licensing of CryptoLogic software and services to licensees who offer their games around the world to non-U.S. based players. For information on WagerLogic®, visit www.wagerlogic.com. CryptoLogic's common shares trade on the Toronto Stock Exchange (CRY, CXY), the NASDAQ Global Select Market (CRYP) and the Main Market of the London Stock Exchange (CRP).

CRYPTOLOGIC FORWARD LOOKING STATEMENT DISCLAIMER:

Statements in this news release which are not historical are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, risks associated with the company's financial condition and prospects, legal risks associated with Internet gaming and risks of governmental legislation and regulation, risks associated with market acceptance and technological changes, risks associated with dependence on licensees and key licensees, risks relating to international operations, risks associated with competition and other risks detailed in the Company's filings with securities regulatory authorities. These risks may cause results to differ materially from those projected in the forward-looking statements.



CRYPTOLOGIC LIMITED
CONSOLIDATED BALANCE SHEET
(In thousands of US dollars)

As at As at
June 30, December 31,
2008 2007
----------------------------------------------------------------------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 58,210 $ 55,428
Restricted cash 5,600 20,576
Security deposits 600 1,500
Accounts receivable and other 13,136 11,357
Prepaid expenses 8,796 8,312
----------------------------------------------------------------------------
86,342 97,173

User funds on deposit 23,082 22,317
Capital assets 25,042 25,802
Long term investments 7,321 5,326
Intangible assets 13,929 14,724
Goodwill 6,545 5,291
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$ 162,261 $ 170,633
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities 22,526 24,154
Income taxes payable 508 4,820
----------------------------------------------------------------------------
23,034 28,974

User funds held on deposit 23,082 22,317
Future income taxes 496 345
----------------------------------------------------------------------------
46,612 51,636
----------------------------------------------------------------------------

Minority interest 9,648 9,691

Shareholders' equity:
Share capital 33,587 33,407
Stock options 6,133 5,044
Retained earnings 66,281 70,855
----------------------------------------------------------------------------
106, 001 109,306

Subsequent event
----------------------------------------------------------------------------
$ 162,261 $ 170,633
----------------------------------------------------------------------------
----------------------------------------------------------------------------



CRYPTOLOGIC LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of US dollar, except per share data)
(Unaudited)

For the three months For the six months
ended June 30, ended June 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue $ 16,800 $ 16,244 $ 36,118 $ 35,806
----------------------------------------------------------------------------
Expenses
Operating 13,170 11,405 27,609 24,963
General and administrative 4,017 2,070 6,869 4,451
Reorganization - 4,036 - 5,665
Finance 80 98 253 193
Amortization 1,469 1,652 2,865 3,135
----------------------------------------------------------------------------
18,736 19,261 37,596 38,407
----------------------------------------------------------------------------

Earnings (loss) before
undernoted (1,936) (3,017) (1,478) (2,601)
Interest income 824 1,649 1,618 3,381
Non operating income (loss) 102
----------------------------------------------------------------------------
Earnings (loss) before income
taxes and minority interest (1,112) (1,368) 242 780
Income taxes
Current 167 209 721 807
Future 118 1,044 147 1,110
----------------------------------------------------------------------------
285 1,253 868 1,917
----------------------------------------------------------------------------
Net earnings (loss) before
minority interest (1,397) (2,621) (626) (1,137)
----------------------------------------------------------------------------
Minority Interest 96 - 258 -
----------------------------------------------------------------------------
Net Earnings and comprehensive
income $ (1,493) $ (2,621) $ (884) $ (1,137)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net Earnings per common share
Basic $ (0.10) $ (0.19) $ (0.04) $ (0.08)
Diluted $ (0.10) $ (0.19) $ (0.04) $ (0.08)



CRYPTOLOGIC LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands of US dollars)
(Unaudited)
For the six months ended
June 30,
2008 2007
----------------------------------------------------------------------------
Retained earnings, beginning of period $ 70,855 $ 78,857
Earnings (loss) for the period (884) (1,137)
Dividends paid, excluding those paid to CEC
shareholders (3,076) (3,333)
Excess of purchase over stated value of
repurchased common shares (614) -
----------------------------------------------------------------------------
Retained earnings, end of period $ 66,281 $ 74,387
----------------------------------------------------------------------------
----------------------------------------------------------------------------



CRYPTOLOGIC LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
(Unaudited)

----------------------------------------------------------------------------
For the three months For the six months
ended June 30, ended June 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
Cash flows from (used in):

Operating activities:
Net Earnings/(loss) $ (1,493) $ (2,621) $ (884) $ (1,137)
Adjustments to reconcile
earnings to cash provided
by (used in) operating
activities:
Amortization 1,469 1,652 2,865 3,135
Unrealized (gain)/loss on
forward contract 165 - (78) -
Future income taxes 166 1,044 151 1,110
Minority Interest 96 - 258 -
Stock options 482 1,823 1,171 2,460
----------------------------------------------------------------------------
885 1,898 3,483 5,568
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Change in operating assets and
liabilities:
Accounts receivable and other (2,224) 3,803 (1,779) (3,106)
Prepaid expenses (672) 2,209 (407) (1,378)
Accounts payable and accrued
liabilities (2,911) (14,569) (1,628) (19,395)
Income taxes payable (4,776) 147 (4,313) 736
----------------------------------------------------------------------------
(9,698) (6,512) (4,644) (17,575)
----------------------------------------------------------------------------

Financing activities:
Issue of capital stock, net 121 323 189 3,630
Repurchase of common shares (739) (739)
Dividends paid including those
to CEC shareholders (3,344) (1,668) (3,344) (3,333)
----------------------------------------------------------------------------
(3,962) (1,345) (3,894) 297
----------------------------------------------------------------------------

Investing activities
Cash paid for Casino.co.uk (1,254) - (1,254) -
Cash paid for acquisition of
Parbet.com - - - (11,771)
Purchase of capital assets (689) (4,268) (1,307) (7,704)
Purchase of other investments (976) - (1,995)
Decrease in restricted cash - - 14,976
Decrease in security deposits - 900
Short term investments - (30,000) - (5,000)
----------------------------------------------------------------------------
(2,919) (34,268) 11,320 (24,475)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (16,579) (42,125) 2,782 (41,753)
----------------------------------------------------------------------------

Cash and cash equivalents,
beginning of period 74,789 77,312 55,428 76,940

----------------------------------------------------------------------------
Cash and cash equivalents, end
of period $ 58,210 $ 35,187 $ 58,210 $ 35,187
----------------------------------------------------------------------------

Supplemental cash flow
information:
Non cash portion of options
exercised $ 19 $ 70 $ 83 $ 1,364


Contact Information

  • CryptoLogic
    Stephen Taylor
    Chief Financial Officer
    35316641682
    www.cryptologic.com
    or
    Argyle Communications
    Daniel Tisch
    (North American and gaming industry media)
    (416) 968-7311 ext. 223
    dtisch@argylecommunications.com
    or
    Argyle Communications
    Karen Passmore
    (North American and gaming industry media)
    (416) 968-7311 ext. 228
    kpassmore@argylecommunications.com
    or
    Corfin Communications
    Neil Thapar
    (UK media only)
    +44 207 977-0020
    or
    Corfin Communications
    William Cullum
    (UK media only)
    +44 207 977-0020
    or
    Corfin Communications
    Harry Chathli
    (UK media only)
    +44 207 977-0020