Optimal Group Inc.
NASDAQ : OPMR
LSE : FPA

Optimal Group Inc.

March 03, 2005 17:06 ET

Optimal Group Announces Fourth Quarter and 2004 Year End Results; $4.2 Million in Underlying Earnings for the Quarter


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: OPTIMAL GROUP INC.

NASDAQ SYMBOL: OPMR

MARCH 3, 2005 - 17:06 ET

Optimal Group Announces Fourth Quarter and 2004 Year
End Results; $4.2 Million in Underlying Earnings for
the Quarter

MONTREAL--(CCNMatthews - Mar 3, 2005) -

Optimal Group Inc. (NASDAQ:OPMR) today announced its financial results
for the fourth quarter and year ended December 31, 2004. All references
are to U.S. dollars.

Revenues for the fourth quarter ended December 31, 2004 were $33.9
million compared to $9.3 million in the fourth quarter ended December
31, 2003. Underlying earnings from continuing operations before income
taxes for the fourth quarter were $4.2 million or $0.18 per diluted
share compared to a loss of $1.9 million or $0.12 per share in the
fourth quarter of 2003. Net earnings for the fourth quarter ended
December 31, 2004 were $0.5 million or $0.02 per share, which includes
amortization of stock-based compensation of $1.9 million or $0.08 per
diluted share. The net loss for the comparable year-earlier period was
$2.9 million or $0.19 per share, which did not include any stock-based
compensation expense.

Effective January 1, 2003, Optimal adopted the fair value-based method
to account for stock-based compensation. Excluding the expensing of
non-cash, stock-based compensation, Optimal's net earnings for the
fourth quarter ended December 31, 2004 would be $2.4 million or $0.10
per diluted share.

Revenues from continuing operations for the year ended December 31, 2004
were $99.4 million compared to $15.7 million in the year ended December
31, 2003. Underlying earnings from continuing operations before income
taxes were $5.0 million or $0.24 per diluted share for the year ended
December 31, 2004 compared to a loss of $6.6 million or $0.44 per share
for fiscal 2003. Net loss for the year ended December 31, 2004 was $9.3
million or $0.46 per share, which includes amortization of stock-based
compensation of $5.7 million or $0.28 per share. The net loss for the
comparable year-earlier period was $6.2 million or $0.41 per share.
Excluding the expensing of non-cash, stock-based compensation, Optimal's
net loss for the year ended December 31, 2004 would be $3.5 million or
$0.17 per share.

Underlying earnings from continuing operations before income taxes is a
non-GAAP (Generally Accepted Accounting Principles) financial measure
that excludes amortization of intangibles, amortization of property and
equipment, inventory write-downs, stock-based compensation,
restructuring costs, foreign exchange, income taxes and discontinued
operations.

Optimal believes that underlying earnings from continuing operations
before income taxes is useful to investors as a measure of Optimal's
earnings because it is an important measure of the Company's growth and
performance, and provides a meaningful reflection of underlying trends
of its business. A reconciliation of Optimal's underlying earnings from
continuing operations before income taxes is included in Annex A to the
Company's consolidated financial statements attached below.

Optimal's financial results include the following transactions, all of
which are reflected in the current and comparative financial results:

-- On July 1, 2004, Optimal acquired National Processing Services LLC,
a payments processing company;

-- On April 8, 2004, Optimal sold its former U-Scan® self-checkout
business, currently reported as discontinued operations;

-- On April 6, 2004, Optimal acquired Terra Payments Inc, a payments
processing company;

-- On February 27, 2004, Optimal acquired the repair depot and field
services division of Systech Retail Systems; and

-- On September 30, 2003, Optimal acquired substantially all of the
assets of RBA Inc, a repair depot and field services company.

Balance Sheet Highlights

Optimal's balance sheet remains strong. At year-end, the Company had:

-- Cash, cash equivalents, short-term investments and settlement assets
net of customer reserves, security deposits and bank indebtedness of
$104.0 million;

-- working capital, excluding cash and short-term investments held as
reserves and cash held in escrow, of $65.1 million; and

-- shareholders' equity of $176.7 million.

Commenting on the announcement, Holden L. Ostrin, Co-Chairman of
Optimal, said, "We are very pleased with Optimal's results in the second
half of 2004. In 2004, Optimal effectively repositioned itself as a
leading payments and services company and Optimal's results in the
second half of 2004 should be viewed in that regard. In the second half
of 2004, Optimal continued to execute on its announced strategy of
growing its payments business organically and by completing strategic
acquisitions. As well, as 2004 progressed, our payments business was
able to leverage off its existing platform to make strong progress in
increasing its processing volume and in adding a significant number of
new merchants. As a result of these efforts, in the second half of 2004,
Optimal was able to generate revenues of just over $65 million and
underlying earnings from continuing operations before income taxes of
$8.1 million."

Mr. Ostrin continued, "Optimal also took steps to streamline and
strengthen its services business in 2004 and this has continued with the
recent addition of seasoned, senior management. In 2005, Optimal is
confident that it will continue to implement its strategic plan of
growing underlying earnings from continuing operations, both organically
and through a prudent acquisition strategy."

Financial Outlook for the First Quarter of 2005

The following statements are based on current expectations, which are
forward-looking and actual results may differ materially. These
statements do not include the potential impact of any future mergers,
acquisitions, divestitures or other business combinations.

For the first quarter of 2005, Optimal anticipates underlying earnings
from continuing operations before income taxes to be approximately $4.5
million.

Optimal's conference call will be held on Friday, March 4, 2005 at 10:30
am (EST). It is the intent of Optimal's conference call to have the
question and answer session limited to institutional analysts and
investors. The call can be heard beginning at 10:30 am (EST) as an audio
webcast via Optimal's website at www.optimalgrp.com. As well, Optimal
invites retail brokers and individual investors to hear the year-end
conference call replay by dialing 1-800-408-3053 Pass Code: 3139468#.
The replay may be heard beginning at 2:30 pm (EST) on March 4, 2005 and
will be available for five business days thereafter.

About Optimal Group Inc.

Optimal Group Inc. is a leading payments and services company with
operations throughout North America and the United Kingdom. Through
Optimal Payments, we provide technology and services that businesses
require to accept credit card, electronic check and direct debit
payments. Optimal Payments processes credit card payments for Internet
businesses, mail-order/telephone-order and retail point-of-sale
merchants, as well as processing checks and direct debits online and by
phone. Through Optimal Services Group, we provide repair depot and field
services to retail, financial services and other third-party accounts.
For more information about Optimal, please visit the company's website
at www.optimalgrp.com.

Forward-Looking Statements:



Statements in this release that are "forward-looking statements" are
based on current expectations and assumptions that are subject to
risks and uncertainties. Actual results could differ materially
because of factors such as the following: our ability to retain key
personnel is important to our growth and prospects; we may be unable
to find suitable acquisition candidates and may not be able to
successfully integrate businesses that may be acquired into our
operations; our contracts for hardware maintenance and repair
outsourcing services may not be renewed or may be reduced; our
hardware maintenance and repair outsourcing services business is
affected by computer industry trends; our hardware maintenance and
repair outsourcing services business operates in a market subject to
rapid technological change; our per incident hardware maintenance and
repair outsourcing services revenues are variable; we operate in a
highly competitive market and there is no assurance that we will be
able to compete successfully against current or future competitors; we
rely on single suppliers for some of our inventory; we may not be able
to accurately predict our inventory requirements; our hardware
maintenance and repair outsourcing services business may be subject to
unforeseen difficulties in managing customers' equipment; our hardware
maintenance and repair outsourcing services business may fail to price
fixed fee contracts accurately; our payments business is at risk of
loss due to fraud and disputes; our payments business may not be able
to safeguard against security and privacy breaches in our electronic
transactions; our payment system might be used for illegal or improper
purposes; we must comply with credit card and check clearing
association rules and practices which could impose additional costs
and burdens on our payments business; we may not be able to develop
new products that are accepted by our customers; the failure of our
systems, the systems of third parties or the internet could negatively
impact our business systems or our reputation; the legal status of
internet gaming is uncertain and future regulation may make it costly
or impossible to continue processing for gaming merchants; we face
uncertainties with regard to lawsuits, regulations and similar
matters; increasing government regulation of internet commerce could
make it more costly or difficult to continue our payments business; we
rely on strategic relationships and suppliers; it may be costly and/or
time-consuming to enforce our rights with respect to assets held in
foreign jurisdictions; our ability to protect our intellectual
property is key to the future growth of our payments business; we
operate in a competitive market for our products and services; our
business systems are based on sophisticated technology which may be
negatively affected by technological defects and product development
delays; our payments business relies upon encryption technology to
conduct secure electronic commerce transactions; the ability of our
payments business to process electronic transactions depends on bank
processing and credit card systems; we are subject to exchange rate
fluctuations between the U.S. and Canadian dollars; we may be subject
to liability or business interruption as a result of unauthorized
disclosure of merchant and cardholder data that we store; our business
is subject to fluctuations in general business conditions; we may be
subject to additional litigation stemming from our operation of the
U-Scan self-checkout business.
For further information regarding risks and uncertainties associated
with our business, please refer to the "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Legal
Proceedings" and "Forward Looking Statements" sections of our annual
report on Form 10-K and quarterly reports on Form 10-Q, filed with the
SEC.
All information in this release is as of March 3, 2005. We undertake
no duty to update any forward-looking statement to conform the
statement to actual results or changes in our expectations.



Consolidated Statements of Operations, Statements of Cash Flows and
Balance Sheets follow:



OPTIMAL GROUP INC.
(formerly Optimal Robotics Corp.)
Consolidated Statements of Operations

Three and twelve month periods ended December 31, 2004 and 2003
(expressed in thousands of US dollars, except per share amounts)
----------------------------------------------------------------------

Three months ended Twelve months ended
December 31, December 31,
--------------------------------------
2004 2003 2004 2003
-------------------------------------------------- -------------------

Revenues 33,856 9,257 99,397 15,666

Expenses:
Transaction processing and
service costs 19,372 6,504 58,443 10,872
Inventory write-downs
pertaining to service costs - - 2,931 -
Amortization of intangibles
pertaining to transaction
processing and service costs 1,049 181 2,844 299
Selling, general and
administrative 9,751 4,435 32,433 11,419
Stock-based compensation
pertaining to selling, general
and administrative 1,904 - 5,736 -
Research and development 409 - 1,511 -
Operating leases 646 449 3,629 970
Restructuring costs - - 1,325 109
Amortization of property and
equipment 1,015 266 2,257 606
Foreign exchange (gain) loss (890) 137 (1,014) 333
-------------------------------------------------- -------------------
33,256 11,972 110,095 24,608

Net earnings (loss) from
continuing operations before
investment income and income
taxes 600 (2,715) (10,698) (8,942)

Investment income 526 265 1,599 981
-------------------------------------------------- -------------------

Earnings (loss) from continuing
operations before income taxes 1,126 (2,450) (9,099) (7,961)

Income tax (recovery) provision 671 (336) 1,188 (3,215)
-------------------------------------------------- -------------------

Net earnings (loss) from
continuing operations 455 (2,114) (10,287) (4,746)

Loss from discontinued
operations - (745) (3,130) (1,422)

Gain on disposal of net assets
from discontinued operations,
net of income taxes - - 4,164 -
-------------------------------------------------- -------------------
Net (loss) earnings 455 (2,859) (9,253) (6,168)
-------------------------------------------------- -------------------

Weighted average number of
shares: (in thousands)
Basic 22,220 14,936 20,290 14,936
Plus impact of stock options
and warrants 544 1 136 1

-------------------------------------------------- -------------------
Diluted 22,764 14,937 20,426 14,937
-------------------------------------------------- -------------------

Earnings (loss) per share:
Continuing operations:
Basic 0.02 (0.14) (0.51) (0.32)
Diluted 0.02 (0.14) (0.51) (0.32)
Discontinued operations:
Basic 0.00 (0.05) 0.05 (0.09)
Diluted 0.00 (0.05) 0.05 (0.09)
Net:
Basic 0.02 (0.19) (0.46) (0.41)
Diluted 0.02 (0.19) (0.46) (0.41)
----------------------------------------------------------------------

OPTIMAL GROUP INC.
(formerly Optimal Robotics Corp.)
Consolidated Statements of Cash Flows

Three and twelve month periods ended December 31,
(expressed in thousands of US dollars)

----------------------------------------------------------------------

Three months ended Twelve months ended
December 31, December 31,
------------------- -------------------
2004 2003 2004 2003
-------------------------------------------------- -------------------

Cash flows from operating
activities:
Net (earnings) loss from
continuing operations 455 (2,114) (10,287) (4,746)
Adjustments for items not
affecting cash:
Amortization 2,064 447 5,101 905
Foreign exchange (232) - (451) -
Future income taxes 577 (555) 983 (2,254)
Stock-based compensation 1,904 - 5,736 -
Inventory write-downs - - 2,931 -
Changes in operating assets and
liabilities:
Accounts receivable (300) (964) (704) (295)
Income taxes and refundable
investment tax credits (1,231) (922) (679) 1,288
Inventory (800) (208) (1,440) (445)
Prepaid expenses and deposits 618 (10) 16 (352)
Accounts payable and accrued
liabilities 826 (642) 2,967 (960)
Change in cash and short-term
investments - reserved 2,712 - 2,712 -
Customer reserves and
deposits 11,238 - 4,316 -
Settlement assets (1,327) - (3,828) -
Deferred revenue (316) 1,303 (709) (175)
----------------------------------------------------------------------
16,188 (3,665) 6,664 (7,034)
Cash flows from financing
activities:
Bank indebtedness (3,626) 4,844 (3,328) 10,726
Repayment of capital leases (560) (631) (762) -
Repayment of long-term debt - (3,746) - (3,746)
Proceeds from issuance of
common shares 307 - 482 -
----------------------------------------------------------------------
(3,879) 467 (3,608) 6,980
Cash flows from investing
activities:
Long-term receivables (37) - 33 -
Proceeds from disposition of
investment in EBS - - 3,974 -
Increase in cash held in
escrow (2,794) - (2,794) -
(Purchase) proceeds from
maturity of short-term
investments (9,466) (7,770) 9,242 1,845
Cash acquired on acquisition
of Terra - - 32,880 -
Purchase of property and
equipment (823) (200) (2,812) (463)
Proceeds from sale of
property and equipment - 656 - 656
Acquisition of Systech Retail
Systems - - (3,465) -
Acquisition of NPS, net of
cash acquired of $126 (114) - (12,006) -
Acquisition of RBA - (164) - (6,046)
Acquisition costs - - (1,389) -
Proceeds from disposition of
business - - 30,194 -
----------------------------------------------------------------------
(13,234) (7,478) 53,857 (4,008)

Effect of exchange rate changes
on cash and cash equivalents
during the period 1,776 - 1,776 -
----------------------------------------------------------------------

Net increase (decrease)
increase in cash and cash
equivalents 851 (10,676) 58,689 (4,062)

Net increase (decrease) in cash
from discontinued operations - 4,902 36 (1,341)

Cash and cash equivalents,
beginning of period 62,086 9,986 4,212 9,615

----------------------------------------------------------------------
Cash and cash equivalents, end
of period 62,937 4,212 62,937 4,212
----------------------------------------------------------------------

Optimal Group Inc.
(formerly Optimal Robotics Corp.)
Consolidated Balance Sheets

December 31, 2004 and 2003
(expressed in thousands of US dollars)
----------------------------------------------------------------------
2004 2003
----------------------------------------------------------------------

Assets
Current assets:
Cash and cash equivalents 62,937 4,212
Cash held as reserves 18,739 -
Cash held in escrow 3,536 -
Short-term investments 88,213 74,302
Short-term investments held as reserves 2,104 -
Settlement assets 14,375 -
Accounts receivable 8,212 4,793
Income taxes receivable and refundable investment tax
credits 773 922
Inventory 3,513 4,216
Prepaid expenses and deposits 1,331 796
Future income taxes - 332
Current assets related to discontinued operations - 25,292
----------------------------------------------------------------------
203,733 114,865

Long-term receivables 3,666 -
Non-refundable investment tax credits 4,747 -
Property and equipment 4,807 1,931
Goodwill and other intangible assets 72,505 10,518
Deferred compensation cost 1,807 -
Future income taxes 3,979 2,278
Long-term assets related to discontinued operations - 5,951
----------------------------------------------------------------------
295,244 135,543
----------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness 8,301 10,726
Customer reserves and security deposits 77,574 -
Accounts payable and accrued liabilities 23,680 5,569
Deferred revenue 3,201 1,302
Current portion of obligations under capital leases 578 -
Future income taxes 917 134
Current liabilities related to discontinued
operations - 4,389
----------------------------------------------------------------------
114,251 22,120

Future income taxes 3,794 130
Deferred revenue 318 -
Obligations under capital leases 200 -
Shareholders' equity:
Share capital 184,191 122,102
Additional paid-in capital 10,557 5
Deficit (16,583) (7,330)
Cumulative translation adjustment (1,484) (1,484)
----------------------------------------------------------------------
176,681 113,293

----------------------------------------------------------------------
295,244 135,543
----------------------------------------------------------------------



Annex A

Use of Non-GAAP Financial Information

We supplement our reporting of earnings (loss) from continuing
operations before income taxes determined in accordance with Canadian
and US GAAP by reporting "underlying earnings (loss) from continuing
operations before income taxes" as a measure of earnings (loss) in this
earnings release. In establishing this supplemental measure of earnings
(loss), we exclude from earnings (loss) from continuing operations
before income taxes those items which, in the opinion of management, are
not reflective of our underlying core operations.

Examples of the type of items which are included in our earnings (loss)
from continuing operations before income taxes as determined in
accordance with Canadian and US GAAP, but which are excluded in
establishing underlying earnings (loss) from continuing operations
before income taxes may include, but are not limited to, restructuring
charges, inventory write-downs, stock-based compensation, amortization
of intangible assets, amortization of property and equipment and foreign
exchange gains and losses. Management believes that underlying earnings
(loss) from continuing operations before income taxes is useful to
investors as a measure of our earnings (loss) because it is, for
management, a primary measure of our growth and performance, and
provides a more meaningful reflection of underlying trends of the
business.

Underlying earnings (loss) from continuing operations before income
taxes does not have a standardized meaning under Canadian and US GAAP
and therefore should be considered in addition to, and not as a
substitute for, earnings (loss) from continuing operations before income
taxes or any other amount determined in accordance with Canadian and US
GAAP. Our measure of underlying earnings (loss) from continuing
operations before income taxes reflects management's judgment in regard
to the impact of particular items on our core operations, and may not be
comparable to similarly titled measures reported by other companies.



OPTIMAL GROUP INC.
(formerly Optimal Robotics Corp.)
Reconciliation of Non-GAAP Financial Information
(expressed in thousands of U.S. dollars)

Three months ended Twelve months ended
December 31, December 31,
--------------------- ---------------------
2004 2003 2004 2003

Earnings (loss) from
continuing operations
before income taxes 1,126 (2,450) (9,099) (7,961)

Add (deduct):
Restructuring costs - - 1,325 109
Inventory write-downs
pertaining to service
costs - - 2,931 -
Stock-based compensation
pertaining to selling,
general and
administrative expenses 1,904 - 5,736 -
Amortization of
intangibles pertaining to
transaction processing
and service costs 1,049 181 2,844 299
Amortization of property
and equipment 1,015 266 2,257 606
Foreign exchange (gain)
loss (890) 137 (1,014) 333

--------------------- ---------------------
Underlying earnings (loss)
from continuing
operations before
income taxes 4,204 (1,866) 4,980 (6,614)
===================== =====================

OPTIMAL GROUP INC.
(formerly Optimal Robotics Corp.)
Consolidated Statements of Operations

Six month period ended December 31, 2004
(expressed in thousands of US dollars)
----------------------------------------------------------------------
Six months
Three months ended ended
--------------------------- -------------
September 30, December 31, December 31,
2004 2004 2004
----------------------------------------------------------------------

Revenues 31,219 33,856 65,075

Expenses:
Transaction processing and
service costs 17,698 19,372 37,070
Amortization of intangibles
pertaining to transaction
processing and service costs 953 1,049 2,002
Selling, general and
administrative 8,351 9,751 18,102
Stock-based compensation
pertaining to selling,
general and
administrative 1,898 1,904 3,802
Research and development 644 409 1,053
Operating leases 1,129 646 1,775
Amortization of property and
equipment 452 1,015 1,467
Foreign exchange gain (63) (890) (953)
----------------------------------------------------------------------
31,062 33,256 64,318

Earnings from continuing
operations before
investment income and
income taxes 157 600 757

Investment income 512 526 1,038
----------------------------------------------------------------------

Earnings from continuing
operations before income
taxes 669 1,126 1,795

Income tax provision 537 671 1,208
----------------------------------------------------------------------

Net earnings 132 455 587
----------------------------------------------------------------------

OPTIMAL GROUP INC.
(formerly Optimal Robotics Corp.)
Reconciliation of Non-GAAP Financial Information
(expressed in thousands of U.S. dollars)
----------------------------------------------------------------------
Six months
Three months ended ended
--------------------------- -------------
September 30, December 31, December 31,
2004 2004 2004
----------------------------------------------------------------------

Earnings from continuing
operations before income
taxes 669 1,126 1,795

Add (deduct):
Stock-based compensation
pertaining to selling,
general and administrative
expenses 1,898 1,904 3,802
Amortization of intangibles
pertaining to transaction
processing and service costs 953 1,049 2,002
Amortization of property and
equipment 452 1,015 1,467
Foreign exchange gain (63) (890) (953)

----------------------------------------
Underlying earnings from
continuing operations
before income taxes 3,909 4,204 8,113
========================================



-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Optimal Group Inc.
    David Schwartz, 514-733-5403 ext. 1429
    david@optimalgrp.com