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RNS Number:7443R
CryptoLogic Inc.
06 November 2003
NEWS FOR IMMEDIATE RELEASE
Symbol: TSX: CRY; NASDAQ: CRYP; LSE: CRP
ALL DOLLAR AMOUNTS IN US$
CRYPTOLOGIC DELIVERS STRONG PERFORMANCE IN Q3 2003
Revenue rose 37%, net profit up 75%;
Strong quarterly growth evidence of focused international and product expansion
strategy
November 6, 2003 (London, UK) - CryptoLogic Inc., a leading software developer
to the Internet gaming and e-commerce industries, announced today its financial
results for the third quarter and nine months ended September 30, 2003. The
strong results highlight the continuing growth and strength of the company's
business.
"CryptoLogic continues to outperform in 2003, driven by our focused strategy of
international diversification and product expansion," said Lewis Rose,
CryptoLogic's President and CEO. "Third quarter revenue rose more than 35% to
$10.9 million and net income increased by 75% to $2.3 million, even in
seasonally the softest period of the year. CryptoLogic also achieved two
important milestones: the listing of our shares on the London Stock Exchange
and the declaration of our first ever quarterly dividend - signs of our
financial strength."
CryptoLogic's third quarter achievements included:
* Earnings growth to $0.18 per diluted share, ahead of analysts' consensus of
$0.15 and the 2002 third quarter of $0.11;
* Commenced trading on the London Stock Exchange's Main Market, in line with
the company's global strategy and commitment to the highest regulatory
standards and transparency in the industry;
* Declared a quarterly dividend of $0.03 per share - the first in CryptoLogic's
history;
* Renewed and expanded an exclusive agreement until 2008 with a major existing
UK licensee, Littlewoods Gaming, for both online casino and poker solutions
developed by CryptoLogic;
* Continued global diversification, with licensees' revenue from international
markets at approximately 55% year-to-date, up from about 40% in fiscal 2002;
and
* New poker and bingo products continued to contribute over 10% of total
revenue, providing promising upside opportunities in these large, emerging
game segments.
Strong Q3 Growth (All financial figures are expressed in U.S. dollars)
For the third quarter ended September 30, 2003, CryptoLogic recorded a 37%
increase in revenue to $10.9 million, compared with $8.0 million in last year's
third quarter. EBITDA for the quarter rose 81% to $2.9 million, compared with
$1.6 million in 2002. This translated into an EBITDA margin of 26% as a
percentage of revenue, up from 20% last year. Net income rose 75% to $2.3
million or $0.18 per diluted share, compared with $1.3 million or $0.11 per
diluted share last year.
The strong gains in the third quarter were attributed to existing customers'
stabilizing and growing businesses fuelled by higher player deposits and wagers,
enhanced payment options, and increasing contribution from new licensees. As
well, growth continued from international players, and incremental revenue from
new poker and bingo products. Improved EBITDA margins for the third quarter
reflected CryptoLogic's scalable expense structure, while the company continued
to invest in key areas of its business to drive sustainable, long-term growth.
Revenue for the nine months ended September 30, 2003 rose 20% to $30.7 million,
compared with $25.6 million in the same 2002 period. EBITDA for the first nine
months in 2003 increased 29% to $8.0 million, compared with $6.2 million before
the non-recurring special charge last year. This translated into improved
EBITDA margin of 26%, up from 24% in 2002. Net income improved 21% to $6.7
million or $0.54 per diluted share, versus $5.5 million ($0.43 per diluted
share) before the special charge in 2002. After the special charge, the company
had a net loss of $4.3 million or $0.35 per diluted share in 2002.
Balance Sheet Strength
CryptoLogic continued its track record of consistent operating profits and
healthy cash flow. At September 30, 2003, CryptoLogic had no debt, and a cash
position of $59.4 million (Q2 2003: $51.6 million) or $4.76 per diluted share
(Q2 2003: $4.19) (comprising cash and cash equivalents, short term investments,
and including restricted cash of $5.6 million). This cash amount excluded $7.8
million in user deposits, which are funds held on behalf of licensees' players.
User funds on deposit have been separated on the balance sheet starting this
quarter to provide improved disclosure of the company's available working
capital.
The company's working capital was $41.9 million or $3.36 per diluted share.
Operating cash flow for the third quarter of 2003 was $9.9 million, up from $2.2
million in 2002, due to increased cash generated from earnings, lower restricted
cash requirements, and other changes in working capital.
Quarterly Dividend
In September, CryptoLogic's Board of Directors adopted a quarterly dividend
policy. The Board approved the first dividend of $0.03 per share, payable on
November 24, 2003 to shareholders of record as at November 17, 2003.
CryptoLogic is one of the few software companies with a regular dividend policy.
Global Expansion
CryptoLogic's strategy of global expansion continued to be reflected in
licensees' international revenue at approximately 55% of total revenue
year-to-date, up from about 40% in 2002. The company continues to benefit from
the favourable contribution and growth of existing and new customers focused on
overseas markets.
In September of 2003, CryptoLogic, through its licensing subsidiary, WagerLogic,
secured a long-term, expanded agreement with a current customer, Littlewoods
Gaming, a major household name in the UK. Littlewoods committed to a five-year
exclusive contract, conditional upon performance targets after the second year,
to continue to use WagerLogic's online casino offering, and added WagerLogic's
proven online poker solution, both until 2008. Littlewoods presents exciting
potential for CryptoLogic in two significant growth areas - the burgeoning UK
market and the large poker opportunity.
London Stock Exchange Listing
The United Kingdom is emerging as the global center for regulated interactive
gaming. CryptoLogic's new listing on London's Main Board further highlights its
considerable UK presence, particularly its local operations and prominent UK
customers, comprising William Hill plc, Littlewoods Gaming, The Ritz Club London
Online, and ukbetting plc. The listing enhances the company's visibility and
profile in this high-growth region, and gives CryptoLogic access to a broader
shareholder base in a gaming-friendly jurisdiction.
Strategic Product Diversification
In an increasingly competitive and sophisticated global market, new game and
service introductions create marketing opportunities for licensees, enhance
player loyalty, and drive incremental revenue. One year since launch, poker and
bingo contributes more than 10% of CryptoLogic's revenue. Licensees are
experiencing growth in their online businesses driven by these large, emerging
game segments that attract a strong community of loyal players.
Outlook
CryptoLogic continues to deliver on its strategic plan and achieve solid top-
and bottom-line performance. The company's strong results in 2003 illustrate
the importance of investments in key areas of CryptoLogic's business.
CryptoLogic remains alert to further opportunities to increase shareholder
value.
Management forecasts that fourth quarter revenue will range from $11.0-$11.5
million, with net income of $2.3-$2.5 million or $0.18-$0.20 per diluted share.
2003 Third Quarter Analyst Call
A conference call is scheduled for 8:30 a.m. (EST) (1:30 p.m. GMT) on Thursday,
November 6, 2003. Interested parties should call either 416-695-9753,
1-888-789-0150 (North America) or international toll free number at (Country
Code) 800-4222-8835. Instant replay will be available until Thursday, November
13, 2003 by calling 416-695-5275 or 1-866-518-1010.
About CryptoLogic (www.cryptologic.com)
Focused on integrity and innovation, CryptoLogic Inc. is a leading software
development company serving the global Internet gaming market. The company's
proprietary technologies enable secure, high-speed financial transactions over
the Internet. CryptoLogic continues to develop state-of-the-art Internet
software applications for both the electronic commerce and Internet gaming
industries. WagerLogic Ltd., a wholly-owned subsidiary of CryptoLogic, is
responsible for the licensing of its gaming software and services to customers
worldwide. For more information on WagerLogic, visit www.wagerlogic.com.
CryptoLogic's common shares trade on the Toronto Stock Exchange (symbol: CRY),
on the Nasdaq National Market (symbol: CRYP), and on the London Stock Exchange
(symbol: CRP).
For more information, please contact:
CryptoLogic, (416) 545-1455 Argyle Rowland, (416) 968-7311 (North American media)
Nancy Chan-Palmateer, Director of Communications Daniel Tisch, ext. 223/ dtisch@argylerowland.com
Jim Ryan, Chief Financial Officer Melissa Chang, ext. 239/ melissa@argylerowland.com
Financial Dynamics, + 44 20 7831 3113(UK media)
Juliet Clarke, juliet.clarke@fd.com
Edward Bridges, edward.bridges@fd.com
CRYPTOLOGIC FORWARD LOOKING STATEMENT DISCLAIMER:
Statements in this press 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 INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
As at As at
September 30, December 31,
2003 2002
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $40,788 $13,660
Restricted cash 5,550 15,740
Short term investments 13,090 10,857
Reserves with processors 176 774
Accounts receivable 198 887
Prepaid expenses 1,219 916
Income taxes recoverable -- 583
61,021 43,417
User funds on deposit 7,816 3,829
Investments -- 680
Capital assets 4,010 2,713
Intangible assets 147 226
Goodwill 1,665 1,665
$74,659 $52,530
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $18,293 $7,605
Income taxes payable 820 --
19,113 7,605
User funds held on deposit 7,816 3,829
26,929 11,434
Shareholders' equity:
Capital stock 10,990 10,720
Retained earnings 36,740 30,376
47,730 41,096
$74,659 $52,530
CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands of U.S. dollars)
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
2003 2002 2003 2002
Retained earnings, beginning of period $34,790 $27,318 $30,376 $52,369
Net income/(loss) 2,284 1,302 6,698 (4,320)
Excess of purchase price of
treasury shares over stated value -- (308) -- (19,737)
Registration costs (334) -- (334) --
Retained earnings, end of period $36,740 $28,312 $36,740 $28,312
CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except per share information)
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
2003 2002 2003 2002
Revenue $10,944 $8,004 $30,671 $25,558
Expenses
Software development and support 6,617 4,879 18,543 14,581
General and administrative 1,374 1,434 3,865 4,401
Finance 74 105 259 358
Amortization 442 303 1,059 718
8,507 6,721 23,726 20,058
Income from operations 2,437 1,283 6,945 5,500
Interest income 196 164 531 490
Income before undernoted 2,633 1,447 7,476 5,990
Special charge -- -- -- (10,506)
Income/(loss) before taxes 2,633 1,447 7,476 (4,516)
Income taxes 349 145 778 (196)
Net income/(loss) $2,284 $1,302 $6,698 $(4,320)
Earnings/(loss) per share
Basic
Before tax effected special charge $0.19 $0.11 $0.55 $0.45
Net income/(loss) $0.19 $0.11 $0.55 $(0.35)
Diluted
Before tax affected special charge $0.18 $0.11 $0.54 $0.43
Net income/(loss) $0.18 $0.11 $0.54 $(0.35)
Weighted average number of shares ('000s)
Basic 12,256 12,317 12,233 12,274
Diluted 12,696 12,338 12,491 13,019
CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
2003 2002 2003 2002
Cash provided by (used in):
Operating activities:
Net income/(loss) $2,284 $1,302 $6,698 $(4,320)
Adjustments to reconcile income to
cash provided by (used in) operating activities:
Amortization 442 303 1,059 718
Write-down of investments -- -- -- 6,903
Gain on sale of investment -- -- (31) --
Changes in operating assets and liabilities:
Restricted cash 1,500 (1,200) 10,190 1,060
Reserves with processors (17) 678 598 (698)
Accounts receivable 1,117 971 689 (52)
Prepaid expenses (261) 230 (303) (208)
Income taxes 924 (45) 1,403 (277)
Accounts payable and accrued liabilities 3,952 5 10,688 2,912
9,941 2,244 30,991 6,038
Financing activities:
Issue of capital stock 53 -- 270 2,402
Registration costs (334) -- (334) --
Repurchase of common shares -- (330) -- (20,126)
(281) (330) (64) (17,724)
Investing activities:
Additions to capital assets (344) (43) (2,269) (740)
Purchase of intangible assets (8) -- (8) --
Short term investments (13,090) -- (2,233) --
Investments -- -- -- (5,933)
Sale of investment -- -- 711 1,056
(13,442) (43) (3,799) (5,617)
Increase (decrease) in cash and cash equivalents (3,782) 1,871 27,128 (17,303)
Cash and cash equivalents, beginning of period 44,570 20,385 13,660 39,559
Cash and cash equivalents, end of period $40,788 $22,256 $40,788 $22,256
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at September 30, 2003
(All figures are in U.S. dollars, except where otherwise indicated)
(Unaudited)
These consolidated interim financial statements of CryptoLogic Inc. (the "
Company") have been prepared in accordance with Canadian generally accepted
accounting principles using the same accounting policies as were used for the
consolidated financial statements for the year ended December 31, 2002. This
consolidated interim financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2002,
as set out in the 2002 Annual Report.
1. Stock Option Plan
In accordance with the Canadian recommendations adopted in 2002, the Company
will continue its existing policy that no compensation cost is recorded on the
grant of stock options to employees. Consideration paid by employees on the
exercise of stock options is recorded as share capital. However, under the
Canadian standard, the Company is required to provide additional pro forma
disclosures for options granted to employees as if the fair value based
accounting method had been used to account for employee stock options.
The fair value of the options granted were made using the Black-Scholes option
pricing model using the following weighted assumptions:
2003 2002
Dividend yield 1% 0%
Risk-free rate 2.75% 2.0%
Expected volatility 75.0% 100.0%
Expected life of options in years 5.0 5.0
Had compensation expense been determined based on the fair value of the employee
stock option awards at the grant dates in accordance with the new
recommendations, the Company's net income and earnings per share would have been
changed to the following pro-form amounts:
Three months ending Nine months ending
September 30, September 30,
2003 2002 2003 2002
As As As As
reported Pro forma Reported Pro forma reported Pro forma reported Pro forma
('000) ('000) ('000) ('000) ('000) ('000) ('000) ('000)
Net income/(loss) $2,284 $2,039 $1,302 $1,164 $6,698 $6,041 $(4,320) $(4,533)
Earnings/(loss) per share
Basic $0.19 $0.17 $0.11 $0.09 $0.55 $0.49 $(0.35) $(0.37)
Diluted $0.18 $0.16 $0.11 $0.09 $0.54 $0.48 $(0.35) $(0.37)
2. Capital Stock
Authorized:
Unlimited common shares
Issued:
Common Shares Series F Warrants Total
Issued Stated Value Issued Stated Value Stated Value
Balance, December 31, 2001 13,137 $8,448 30 $272 $8,720
Repurchase of shares (1,240) (389) -- -- (389)
Exercise of stock options 349 2,402 -- -- 2,402
Balance, September 30, 2002 12,246 $10,461 30 $272 $10,733
Balance, December 31, 2002 12,206 $10,448 30 $272 $10,720
Share issue 24 104 -- -- 104
Exercise of stock options 31 166 -- -- 166
Balance, September 30, 2003 12,261 $10,718 30 $272 $10,990
3. Special Charge - 2002
During the second quarter of FY 2002, the Company took a one-time special charge
of $10.5 million ($9.9 million on an after tax basis). This charge was
comprised of a write-down of investments that were deemed permanently impaired,
including the 100% write-down of the Company's investment in SCG Enterprises
Limited, a wholly owned subsidiary of Sports.com, as well as costs associated
with consolidation of the Company's players' support operations, executive
management reorganization, and estimated settlement and legal costs.
4. Comparative Figures
Certain of the prior years' figures have been reclassified for consistency with
the current presentation. Cash related to user funds on deposit have been
segregated and reclassified as to User Funds on Deposit as a non-current asset.
The corresponding liability has been renamed User Funds Held on Deposit and
reclassified as a non-current liability. In addition, Canadian Goods and
Services Tax (GST) and European Value Added Tax (VAT) Recoverable have been
reclassified from Prepaid Expenses to Accounts Receivable.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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