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Cryptologic In The Money
Another eventful quarter from online gambling software
provider
Veteran online gambling software provider Cryptologic has reported
another eventful quarter, listing eight new licensee sites, 40 new
games, interesting acquisitions and continuing Asian expansion among
its achievements.
Reporting on financial results for the three months ended March
31 2007, the company revealed revenue and earnings of $19.6 million
(down 27.5 percent on Q1 2006) and $1.5 million, respectively. CryptoLogic
ended the quarter with $103.8 million in net cash.
The first quarter included several special items, including an
increase in revenue of $4.0 million ($4.5 million before tax) resulting
from a change in the company's estimate of the future amount to
be paid out in casino jackpots; a charge of $1.4 million ($1.6 million
before tax) for the establishment of the company's new global headquarters
in Europe; and $0.7 million ($0.8 million before tax) in development
costs related to new licensee sites.
"At CryptoLogic , the first quarter was about investing in
the future, and charting a course for global growth," said
Javaid Aziz, CryptoLogic 's new President and CEO. "We've launched
five new customer sites since December, and have seven more in the
queue - including two for Holland Casino, and two for World Poker
Tour.
"With our largest customers on long-term agreements, and modest
revenue expected this year from our Asian venture, CryptoLogic is
poised for long-term growth in the European markets of today - and
the Asian markets of tomorrow."
CryptoLogic 's results follow a busy quarter in which the company
unveiled a series of new games and customer acquisitions in an uncertain
era of significant change for the industry following the United
States prohibition on online gaming financial transactions last
fall.
Since most of the company's business came from Europe before the
legislation, the financial impact of the U.S. action on CryptoLogic
was less serious than it was for many competitors that derived substantially
all of their revenue from U.S. -based players. Prior to enactment
of the Unlawful Internet Gaming Enforcement Act (UIGEA) passed in
October 2006, licensees' revenue from Europe-based players was approximately
70 percent of total revenue; now all revenue is from non-U.S. based
players. The company is building on this strong base with an aggressive
plan to add additional licensee revenue in Europe and the rest of
the world.
Highlights of the report include:
New customers
* Signed land-based World Poker Tour for exclusive three year contract
for on-line poker
* Launched PlayboyGaming.com's poker site, with the casino site
set to launch in the second quarter of 2007
* Launched sites for Betsafe and Parbet, two growing Scandinavian
poker brands
New market: Government-owned casino
* Signed an exclusive three-year agreement to provide both poker
and casino software for Holland Casino , the Netherlands' government-owned
casino operator. Subject to certain approvals, the new sites are
expected to launch in June 2007
New partnership in Asia
* Signed a memorandum of understanding with Brilliance Technology
Co . and 568 Network Inc . to penetrate the high- growth Chinese
market with CryptoLogic 's existing games and new games for the
Chinese diaspora. Subscription-based "play-for-fun" games
are planned to be offered over the Internet and mobile phones. "Play-for-money"
games are planned to be offered through retail locations licensed
by the China Welfare Lottery, the nation's gaming licensing authority
Strategic acquisition
* Purchased the poker brand and related assets of Parbet.com, a
popular Scandinavian online poker room, and licensed them to a third
party operator
Game innovation
* Converted major casino games to multi- language basis
* Awarded Gambling Online's Top Casino Software Award for the second
year running. The award is based on the votes of players from around
the world
* Extended exclusive brand licensing agreement with Marvel Entertainment
Inc. to 2010
Corporate initiatives
* Developed a plan to establish its new executive headquarters
in Ireland this year, subject to approval at a special meeting of
shareholders on May 24, 2007
* Javaid Aziz joined the company on April 2, 2007 as President
and Chief Executive Officer
* On May 9, 2007, declared a quarterly cash dividend US$0.12 per
share
Financial Performance
Total revenue for the quarter was $19.6 million, 27.5 percent lower
than Q1 2006. Poker revenue was down mainly due to the loss of the
Betfair licensee in Q4 2006. Casino revenue was enhanced by an adjustment
to amounts provided to cover future jackpot payouts of $4.5 million.
CryptoLogic's financial strength continued to be reflected in its
strong balance sheet. At March 31, 2007, net cash was $103.8 million
(comprising cash and cash equivalents, short term investments and
security deposits), or $7.43 per diluted share (December 31, 2006:
$128.4 million, or $9.35 per diluted share). The decrease in net
cash of $24.6 million reflects mainly amounts paid for the January
2007 purchase of Parbet, purchase of capital assets and increases
in non-cash operating assets. The company continues to be debt-free.
For Quarter 2 2007, CryptoLogic estimates revenue of $15.5 -$16.5
million. The company expects earnings in Q2 2007 to be break-even,
before the deduction of $1.5 million in pre-tax costs related to
the new European headquarters. After those costs are deducted, the
company forecasts a loss of $1.5 million, or ($0.11) per diluted
share. This represents an additional quarter of investment in new
licensee relationships to build for future earnings growth.
CryptoLogic expects 2007 to be a year of transition, with growth
expected in both Europe and Asia. The company has signed its largest
customers to long-term agreements, launched five new customer sites
since December, and expects to launch three more in the second quarter
(Playboy Gaming's Internet casino, and Holland Casino's poker and
casino sites). Later this year, CryptoLogic expects to benefit from
modest revenue from its new venture in China.
Beyond 2007, industry analysts continue to expect strong growth
from the European market, which has been CryptoLogic 's core focus
for the last five years. In addition, rapid online growth in Asia
is expected in the years to come.
Accordingly, the company has set itself the following long-term
financial objectives for its continuing business in Europe and Asia:
* Grow revenue and earnings at 20 percent year-over-year for Europe
and Asia combined
* Achieve net margin and return on equity of 20 percent
* Achieve double -digit revenue growth in casino and poker
* Exceed industry growth rates in key online casino and poker markets
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