Cryptologic reassures market that it is on track

Cynics might say that Cryptologic’s latest public update on its growth strategy was to some extent spurred by the recent challenge from ex-CEO Javid Aziz that management’s strategy needed some revision. Whatever the motivation, the company went public with its intentions this week, predicting net income of $9 – $10 million in 2009.
The update claims that the new growth strategy and restructuring program positions the company for a return to profitability and cash generation in 2009, and further growth in the years to come.
Goals are listed as:
* Reduced total operating costs of approximately $13 million on an annualised basis by the end of Q2 2009.
* Restructuring to result in $3.5 million cash costs and up to $20 million in further non-cash charges.
* Outsourcing of poker network through a strategic partnership with GTECH Corporation (Boss Media) to be completed by the end of Q1 2009. The partnership will improve poker-room liquidity for Cryptologic customers, while eliminating the costs of operating a standalone network.
* Rationalization includes reconfiguration of network, a 75 percent reduction in servers and office rental costs.
* Growth to be driven by Cryptologic’s Internet casino business, and by development and licensing of branded online games to leading gaming and entertainment brands.
* Recently contracted customers including 888.com, PartyGaming and GigaMedia expected to generate new revenues of at least $8 million in 2009.
* Continued aggressive expansion of casino business through licensing contracts is intended, with a robust new business pipeline for 2009.
* New deal just signed with Gaming Technology Solutions plc, to provide games. GTS customers include Unibet, bwin and many other top brands.
* Return to profitability and cash generation from Q2 2009.
* Full year cash generation post restructuring of $11-$13 million.
* Net profits in the range of $9-$10 million.
* Diluted earnings per share of 65-71 cents.
“CryptoLogic has taken radical steps to focus on its core strengths as a developer of exciting online gaming content,” said Brian Hadfield, CryptoLogic’s President & CEO. “We are on track to return to profitability and generate cash from the second quarter of 2009.
“Our streamlined operations, lower operating costs and commitment to creating compelling customer experience, together with a highly profitable build-once-sell-often model, provides a solid springboard for long-term growth and shareholder value.”
The company is in the process of finalising its results for the fourth quarter and full year 2008. While trading levels were broadly in line with management expectations in the fourth quarter, revenues were affected by the continued strengthening of the US dollar, the company’s reporting currency, against the Euro, Canadian dollar and the British pound. As a result, reported revenues are expected to be approximately 14 percent lower than the previous quarter. Against that, recurring operating expenses will also be lower due to currency fluctuations.
Net cash at the year end was between $42-$43 million.

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