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05 August 2005
CryptoLogic Reports Strong
Results
CryptoLogic
Inc., a leading software developer to the global internet
gaming market, today announced its financial results for the
second quarter and six months ended June 30, 2005. In this
seasonally softer period for online gaming, CryptoLogic
delivered strong revenue, excellent earnings and positive
operating cash flow due to continued organic growth from
existing customers in the company's primary Internet casino
and Internet poker markets.
"CryptoLogic continues to
benefit from both the right products and the right
strategy," said Lewis Rose, CryptoLogic's President and CEO.
"For CryptoLogic, this means offering the best games to some
of the world's best gaming brands and investing in the
world's best markets for online gaming. That's why we're
achieving positive returns through solid casino performance
and 17% sequential quarterly growth in poker, well ahead of
the Internet poker industry."
Fiscal 2005 second quarter
highlights included:
- Quarterly revenue grew
33% to $19.9 million, and earnings grew 48% over Q2 2004 to
$4.7 million or $0.33 per diluted share. This exceeded
analysts' average consensus of $0.30 per diluted
share;
- Internet poker fees
derived from the company's WagerLogic subsidiary rose
approximately 180% over Q2 2004, and increased 17% over Q1
2005. Poker accounted for more than 30% of Q2 2005 revenue.
Continued growth from Internet poker licensees and an
expanding poker offering contributed to these strong
results;
- CryptoLogic released new
enhancements to its poker software, including high-speed
Lightning(TM) games and an expanded range of lower-limit
tables. These enhancements gave players more choice of games
at their desired speed and skill level;
- Internet casino revenue
derived from WagerLogic continued steady growth, rising
almost 4% over Q2 2004, and remained a major revenue
generator, accounting for approximately 60% of total Q2 2005
revenue;
- Product innovation saw
Bonus Pack 7 of the company's casino software introduce a
suite of 12 new variations of highly popular, multi-line
video slots and two new scratch card games - the first ever
developed by CryptoLogic;
- The company continued to
enjoy excellent geographic diversification with licensees'
revenue from international markets exceeding 65% of total
revenue, up from over 60% in 2004; and
- A quarterly dividend of
$0.05 per share will be payable on September 15, 2005 to
shareholders of record as at September 8, 2005.
Q2 Results: Strong
Revenue, Excellent Earnings (all financial figures expressed
in US dollars)
CryptoLogic's strong
revenue and earnings momentum continued in the second
quarter ended June 30, 2005. Revenue rose 33% to $19.9
million (Q2 2004: $14.9 million). EBITDA(1) for the quarter
grew 26% to $5.6 million (Q2 2004: $4.4 million). Despite
increased costs associated with investing in the growth of
the company's business to drive higher revenue generation,
EBITDA(1) margin for the quarter remained solid at 28% as a
percentage of revenue (Q2 2004: 30%). Earnings for the
quarter rose 48% to $4.7 million or $0.33 per diluted share
(Q2 2004: $3.2 million or $0.23 per diluted
share).
CryptoLogic achieved
excellent second quarter performance notwithstanding the
traditional softness of this period for online gaming. The
company attributed this success to steady organic growth
from existing customers in the company's core casino market,
and to the continuing high growth of licensees' Internet
poker businesses.
As previously detailed, in
Q3 2004, CryptoLogic embarked on a $12.5 million investment
program to support the company's long term growth, and this
continuing program contributed to the second quarter's
positive results. As at Q2 2005, the company had invested
approximately 74% ($9.2 million) of this program, of which
$3.3 million were operating costs and $5.9 million were
capital expenditures (comprising $3.2 million for the
purchase of capital assets and $2.7 million in capitalized
software development related to the investment
program).
Revenue for the first half
of 2005 increased 33% to $40.2 million (Q2 2004 YTD: $30.1
million). EBITDA(1) for the first six months in 2005 rose by
26% to $11.4 million (Q2 2004 YTD: $9.0 million). EBITDA(1)
margin for the first six months in 2005 remained solid at
28% as a percentage of revenue (Q2 2004 YTD: 30%). Earnings
for the first half of 2005 improved by 36% to $9.6 million
or $0.67 per diluted share (Q2 2004 YTD: $7.0 million or
$0.52 per diluted share).
Balance Sheet Strength:
Healthy Cash Flow, No Debt
At June 30, 2005,
CryptoLogic had no debt, and total cash grew to $93.0
million or $6.53 per diluted share (comprising cash and cash
equivalents, short term investments, and including security
deposits of $7.0 million). CryptoLogic's working capital
rose to $72.6 million or $5.10 per diluted share.
On August 2, 2005,
CryptoLogic's Board declared the next quarterly dividend of
$0.05 per share, payable on September 15, 2005 to
shareholders of record as at September 8, 2005.
Operating cash flow for
the second quarter of 2005 rose to $6.6 million (Q2 2004:
$2.6 million). This increase was largely attributed to
higher earnings as well as timing of accounts receivables
and payables.
Geographic
Diversification: UK and Europe Lead the Way
CryptoLogic's business
continued to be well-diversified across the world's major
Internet gaming markets. Revenue generated from licensees'
international players remained on target at more than 65% of
Q2 2005 revenue, up from over 60% in 2004. The UK and
Continental Europe continued to be the largest markets,
together accounting for more than 60% of overall revenue in
the quarter.
Product Expansion: New
Games, New Features
CryptoLogic's ongoing
investment in its poker software and system infrastructure
continued to pay off. In the quarter, fees earned from
Internet poker rose approximately 180% over Q2 2004, and up
17% over the first quarter of this year. Online poker fees
accounted for more than 30% of total Q2 2005
revenue.
The company's newly
enhanced poker software, which now includes high-speed
Lightning(TM) games and an expanded range of lower-limit
tables, added to one of the most extensive poker offerings
on the Internet. The software gives players greater choice
to play the game they want, at the speed they want, for the
stakes they want, and in multiple currencies. Today, the
fast-growing central poker room shared by WagerLogic
licensees attracts more than 6,700 simultaneous online
players, and its system capacity has been expanded to
support growth to more than 16,000.
Internet casino remained a
healthy cash contributor, accounting for approximately 60%
of total Q2 2005 revenue and growing almost 4% over Q2 2004.
The Internet casino market, while more developed than
Internet poker, continues to offer vast potential as it
still represents less than five percent of the world's
land-based casino market (source: Global Betting &
Gaming Consultants). In this environment, new
market-targeted games are key drivers of growth; accordingly
WagerLogic released Bonus Pack 7, a package of 12 new
multi-line video slot and jackpot games with added elements
of skill through arcade-style bonus rounds, and introduced
the company's two first-ever scratch cards.
Outlook
CryptoLogic's disciplined
execution and targeted investments in its primary Internet
casino and Internet poker markets continued to generate
strong revenue, profitability and cash flow. Although the
third quarter is expected to benefit from the new casino
games and the continued strength in poker, the summer months
are seasonally the slowest period of the year as Internet
activity tends to soften, particularly in the casino
segment. Management forecasts third quarter revenue to range
from $19.4-$19.7 million, with earnings of $4.5-$4.7 million
or $0.31-$0.32 per diluted share.
CryptoLogic's major
investment program is continuing on schedule, and has
already translated into growing near term returns. The
program's goal is to enhance the company's long term global
leadership and competitive advantage.
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