Veteran online gambling software development company Cryptologic announced its financial results for the three months and full year ended December 31, 2008 this week. The results reflect a transitional year in which the company's new management team repositioned CryptoLogic's business, signed 10 new customers and advanced a restructuring plan to return the company to profitability in 2009.
The Full-year summary released by the company shows it :
* Launched new growth strategy and restructuring to return to profitability and cash generation in 2009, driven by Internet casino, games development and licensing to top gaming/entertainment brands
* Executed an agreement for a shared poker network with GTECH Corporation's subsidiary, Boss Media AB, substantially reducing costs while improving liquidity for players: integration of all poker customers to be completed on March 19, 2009
* Secured 10 new customer contracts, including 888.com, PartyGaming, BSkyB and GigaMedia
* Released 34 new games, featuring big brands such as Street Fighter II, Sub-Mariner and King Kong
* Revenue of $61.5 million (2007: $73.7 million), in line with market expectations
* Net loss of $32.7 million (2007: net profit of $5.5 million), reflecting write downs of impaired assets, non-recurring restructuring costs and currency factors, as announced previously
* Diluted loss per share of $2.55 (2007: $0.47 diluted earnings per share)
* Net cash of $43.8 million (2007: $77.5 million), slightly above guidance
Quarter 4 reslts are summarised as:
* Revenue of $11.4 million (Q4 2007: $20.4 million)
* Net loss of $26 million (Q4 2007: $4.3 million net profit) including write downs of assets and program costs, non-recurring restructuring costs, departure costs for ex-CEO, and currency factors
* Diluted loss per share of $2.05 (Q4 2007: $0.36 diluted earnings per share)
* Restructuring resulted in $1.4 million in cash costs and $19.2 million in non-cash charges, in line with the company's guidance
* Received initial revenue from new licensing contracts signed during 2008, including 888.com
Management expects the following to be achieved going forward:
* The company is on track to achieve its full-year 2009 guidance provided on January 15, 2009, assuming no further deterioration in economic conditions and stabilisation in currency markets:
* Net income in the range of $9-$10 million
* $8 million revenue from 2008 customer signings
* Full-year cash generation post-restructuring of $11-$13 million
* Diluted full-year earnings per share target of $0.65-$0.71
Management reports that the company has entered 2009 with momentum from new agreements with Warner Bros. Digital Distribution and DC Comics, Gaming Technology Solutions plc and Paramount Digital Entertainment
"In the fourth quarter, we unveiled a bold strategy to refocus CryptoLogic on its core strengths - and on a return to profitability in 2009," said Brian Hadfield, CryptoLogic's President and CEO. "Our restructuring program is ahead of schedule. With a lower cost base, 10 new customers signed to date and a highly profitable 'build-once-license-often' model - coupled with the financial strength to weather difficult global economic conditions - CryptoLogic is on track for a substantial turnaround this year."
Hadfield adds that 2008 was a transitional year for CryptoLogic. The company's new management took office in late February 2008.
"Following a fundamental review of the business and a renewed focus on customer acquisition, CryptoLogic unveiled a new growth strategy and restructuring program in October 2008. This strategy - now in an advanced stage of execution - is to achieve long-term growth, sustained profitability and strong cash generation by focusing on CryptoLogic's successful hosted Internet casino business and the development and licensing of the company's highly acclaimed branded games," he said.
Restructuring and rightsizing the business includes a plan to reduce annual operating costs by approximately $13 million through various initiatives. Approximately $8.5 million of the savings will come from a reduction in employee expenses; about $2.5 million from infrastructure and facilities downsizing, including a 75 percent reduction in server and office rental costs; and about $2.0 million in savings from operational efficiencies across the business. CryptoLogic is on schedule to complete the restructuring program by the end of Q2 2009. Due to rapid and decisive action undertaken last year, the company expects to return to positive cash flow from Q2 2009.
As announced last year, CryptoLogic is about to integrate its Internet poker licensees with those of GTECH Corporation. The move gives CryptoLogic's poker licensees and players access to a larger network with a combined average of 15 000 active players, at a far lower cost to the company. CryptoLogic will continue to provide a full-service offering for its licensees and receive ongoing revenue from its poker customers. This integration of the network will be completed on March 19, 2009.
The company significantly increased its customer acquisition activities in 2008. As a result, 10 new contracts for both hosted Internet casinos and the licensing of branded games were signed during 2008 compared with just one in 2007. The company's new customers include 888.com, PartyGaming, GigaMedia, BSkyB Group, Orbis, The Poker Channel and Betjacks. These agreements offer significant revenue potential for 2009 and beyond, as the company expects to launch up to 30 branded games by the end of the second quarter.
In January 2009, the company further expanded its channels to market with a strategic partnership with Gaming Technology Solutions plc ("GTS"), a leading global supplier of platform solutions for online gaming operations. Under the agreement, CryptoLogic's top-performing games will be made available to GTS customers, which include many well-established European brands. GTS and Orbis are major distribution channels to the e-gaming sector and are completing the integration of CryptoLogic-developed branded games into their platforms this quarter. As a result, the company is well positioned to earn revenue from these channels as they roll out CryptoLogic games to their extensive customer base.
The company has launched the CryptoLogic Centre for Innovation, where customers, partners, universities and others can participate in defining and guiding the future of e-gaming. The first game from this centre will be released in April 2009. By moving from concept to delivery in less than four months, this will be the fastest development of a game in CryptoLogic's history. As part of the new strategy, the company will unveil a new brand identity based on "extraordinary e-gaming innovation," in conjunction with the company's annual report.
First quarter 2009 results are assessed as encouraging but include estimates of an additional cash cost of up to $2.1 million related to the restructuring in the first half of 2009, in line with guidance.