DUBLIN, IRELAND, Nov 13, 2008 - ALL FINANCIAL FIGURES ARE IN US$
CryptoLogic Limited, a world leader in Internet gaming software, today reported its financial results for the three months ending September 30, 2008. The company posted revenue of $14.0 million and a net loss of $5.9 million, including a foreign exchange loss of $4.2 million. CryptoLogic also projected a favourable outlook for 2009 following significant new customer wins and yesterday's announcement of a new strategic poker partnership with GTECH Corporation that will help reduce operating expenses and increase profitability.
By partnering with GTECH's International Poker Network in 2009, CryptoLogic will give its licensees and players access to a larger network, while helping to reduce annual operating expenses by $12-15 million. This move is part of CryptoLogic's strategy to achieve revenue growth and profitability by focusing exclusively on its very popular branded games and its Internet casino business. The shift will enable the company to build on its fast-growing list of major casino customers and its leadership in the branded gaming space.
"In a challenging year for our company and our industry, we recognize that we must do better - and that is why CryptoLogic is aggressively implementing its strategy to achieve profitability and growth in 2009," said Brian Hadfield, CryptoLogic's President and CEO. "CryptoLogic's proven casino offering is attracting new customers more swiftly than ever before, and our branded games have earned the confidence of some of the world's biggest gaming operators. And we have already begun reducing our operating costs - a trend that will continue as we implement our new poker partnership."
As announced in September, the company also booked a significant foreign exchange loss in the quarter due to the rapid and unexpected appreciation of the U.S. dollar against the U.K. sterling and the euro, CryptoLogic has since moved substantially all of its cash and marketable securities into U.S. dollars to minimize the impact of further currency market volatility.
In light of the results, the company's board of directors has declared a quarterly dividend of $0.03 per common share, a reduction from the previous level of $0.12. The continuing payment of a dividend, even in a challenging year, reflects the board's confidence in CryptoLogic's strategy to return to growth and profitability in 2009.
OPERATIONAL HIGHLIGHTS:
New distribution channels
* CryptoLogic has found attractive and lucrative opportunities licensing some of its leading games to large global Internet gaming operators such as 888.com and the company's newest customer, PartyGaming. These agreements offer significant revenue potential for 2009 and beyond.
* Based on the success of the initial launch of CryptoLogic's games in early October, 888.com has ordered 10 more, bringing the total number of games to 13.
Internet casino: licensing & launches
* In August, CryptoLogic announced a three-year contract with the Gaming Media Group Limited, owner of The Poker Channel(R), Europe's largest dedicated gaming television network. CryptoLogic will develop an Internet casino using its award-winning casino software. The site will be available to players around the world - in five languages - later this year.
* CryptoLogic also announced a three-year casino licensing contract with Sky Betting & Gaming, part of BSkyB Group plc (BSkyB), the U.K.'s leading entertainment brand. A selection of CryptoLogic's top non-downloadable casino games will be available on SkyVegas.com by early 2009.
* Subsequent to quarter end, CryptoLogic launched a new site for Betjacks, one of the company's new European clients. The site went live on November 4, 2008.
* CryptoLogic announced an exclusive multi-year licensing contract with GigaMedia Limited, a major provider of online entertainment software and services. CryptoLogic will be the only external provider to offer casino software across the Everest Gaming platform - GigaMedia's highly popular gaming technology offering.
* Innovation and branded games
* CryptoLogic launched a new game pack featuring Sub-Mariner, another famed Marvel Super Hero, and 4 Deck Multi Hand Video Blackjack, a patent-pending product developed exclusively by CryptoLogic.
* Subsequent to the quarter end, CryptoLogic launched Bonus Pack 15, a new seven-game lineup featuring branded games based on Merian C. Cooper's King Kong and the popular Casinomeister portal, new European Blackjack and upgraded European Roulette software, and other innovations.
* On November 7, CryptoLogic announced an agreement with NextGen Gaming, the world's leading independent developer of slot games, under which the two companies will collaborate on both the development and the distribution of branded games.
New markets
* In August, CryptoLogic's investment in Mahjong Time showed its significant potential when the company signed a licensing agreement to gain access to 50 per cent of the Internet cafes in China.
* In early October, CryptoLogic announced an exclusive licensing agreement with Kurastica, an operator doing business in Russia and the Commonwealth of Independent States (CIS). The multi-year deal means Kurastica will begin offering CryptoLogic's award-winning Internet casino software through various channels in early 2009.
FINANCIAL PERFORMANCE
Total revenue: CryptoLogic's revenue for Q3 2008 was $14.0 million, a decrease of 16.4% from the second quarter and 19.7% when compared with the same period of 2007. The company's Internet casino revenue was slightly over $10.1 million, compared with $10.8 million in the second quarter. Poker revenue was $3.2 million, down from $3.6 million in Q2. The company attributes these decreases to a combination of reduced Internet gaming in the summer months and reduced marketing activity by one of its major licensees.
Revenue for the nine months ended September 30, 2008 was $50.2 million, a decrease of 5.9% when compared with the same period of 2007 (September 30, 2007: $53.3 million). However, after adjusting for certain non-recurring benefits recorded in the first nine months of both 2008 and 2007, revenue was essentially flat when compared to the same period of last year.
Expenses: Operating expenses for the quarter ended September 30, 2008 were $16.5 million, or 117.5% of revenue (Q3 2007: $11.8 million or 67.3% of revenue). For the nine months ended September 30, 2008, operating expenses were $44.1 million or 87.9% of revenue (September 30, 2007: $36.7 million or 68.9% of revenue). Operating expenses increased primarily due to a $4.2 million loss on foreign exchange recorded during the quarter as the U.S. dollar appreciated by approximately 10% against both the U.K. pound and the euro during a period where the company had significant net asset positions in these currencies. CryptoLogic has since moved substantially all of its cash and marketable securities into U.S. dollars, the company's reporting currency, to minimize the reported impact of further currency market volatility. Operating expenses in Q3 2008 were favorably affected by reduced compensation costs, reduced costs recorded in connection with the company's long-term incentive plan, and e-cash processing fees.
Earnings and Earnings per Diluted Share: Due to the reduced revenue and higher expenses noted above, the company recorded a loss for the quarter of $5.9 million, or $0.45 per fully diluted share. The increased loss was due primarily to the $4.2 million loss on foreign exchange recorded during the period, as well as increased operating, general and administrative costs, and decreased interest income in Q3 2008. The loss for the nine months ended September 30, 2008 was $6.8 million, or $0.50 per fully diluted share.
Balance Sheet and Cash Flow: CryptoLogic's working capital at September 30, 2008 was $52.9 million or $3.82 per diluted share (June 30, 2008: $63.3 million or $4.54 per diluted share.). Net cash (comprised of cash, cash equivalents and short-term investments) was $48.7 million (June 30, 2008: $64.4 million). The decrease in working capital during the three and nine months ended September 30, 2008 is primarily due to purchases of capital assets, purchase of long term investments, primarily in Asia, shares repurchased under our normal course issuer bid and payments of dividends.
STRATEGIC UPDATE
On October 20, 2008, CryptoLogic announced a new strategy that features a change to its business model:
* Casino licensing: Internet casino is by far CryptoLogic's most profitable business, and the company expects significant revenue growth from this segment in 2009, thanks to the 10 new customers signed in 2008, and others to come. CryptoLogic will continue to sell customized casino solutions to both established and emerging gaming brands.
* New channels for CryptoLogic games: With the highest-rated casino games on the market, CryptoLogic has found attractive opportunities selling its leading games to other top brands, such as 888.com and PartyGaming. These and other large global gaming sites offer significant revenue potential for 2009 and beyond.
* Branded content: The company has been a pioneer in taking top entertainment brands - from legendary superheroes to world-famous video and casual games -- and converting them into highly popular and profitable casino products. CryptoLogic will focus and build on this expertise.
* Poker partnership: CryptoLogic is outsourcing its poker network to increase liquidity and profitability for customers, while reducing the company's own expenses substantially. - New markets: The company will continue to develop its business and manage its recent investments and new relationships in China, Korea, Russia and Singapore to achieve long-term growth.
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