Cryptologic revenues up at last

The online gambling software developer Cryptologic, currently in negotiation with Amaya Gaming as a takeover target, has released it first positive revenue report since 2006 for the fourth quarter and full year ended December 31 2011.

Full year highlights include:

—  Total revenue rose to $27.3 million (2010: $26 million), the first increase since 2006
—  Profit of $6.5 million, including tax credit of $2.7 million and profit on sale of investment of $1.3 million, (2010: $21.6 million loss), the first annual profit since 2007—
–   Total expenses reduced by 48 percent to $24.8 million (2010: $47.3 million)
—  Cash increased by 57 percent to $16.6 million (2010: $10.6 million)
—  Signed licensing deals for CryptoLogic games with several operators, including SkillOnNet, bwin and Loto Quebec
—  212 branded games now live and producing revenue (2010: 170)
—  Instant Click, the company’s rapid-deployment games suite, delivered first revenues after its launch by new licensees

Q4 2011 highlights included:

—  Profit increased to $5.8 million, including tax credit of $3.4 million and profit on sale of investment of $1.3 million, (Q3 2011: $1.1 million profit)
—  Total revenue was $7 million (Q3 2011: $7.2 million)
—  Total expenses $5.9 million (Q3 2011: $5.9 million)

David Gavagan, chairman and interim chief executive officer, said: “While trading conditions remained challenging throughout the year, our strategy and restructuring and the commitment of our people over the past 18 months have returned the business to profit for the first time since 2007 and delivered the first annual increase in revenues and cash for five years.”

Management reported a significant turnaround for the company in 2011 resulting from a continued focus on increasing revenues and maintaining tight control over costs following the significant restructuring programme initiated in August 2010.

The goals set out to stabilise the company and return to revenue growth and profitability were achieved last year. The breathing space afforded by the restructuring allowed the Cryptologic to arrest the decline in revenues, resulting in the company reporting:

—  its first annual increase in revenues since 2006
—  its first annual profit and earnings per share since 2007
—  its first cash generation from operations since 2006

In February 2012, a recommended cash offer from Amaya Gaming Group Inc. for the entire issued and to be issued share capital of Cryptologic was announced at a price of $2.535 per share, a premium of approximately 110 percent to the closing price of $1.21 per share on NASDAQ on March 24, 2011, the day prior to the announcement of the strategic review .

Revenue from Hosted Casino increased 7 percent to $23.4 million in 2011 (2010: $22 million), and includes an increase in jackpot revenue of $1.4 million, including a revision of Management’s estimate to discharge future jackpot payouts of $900 000, and a reduction of $300 000 in liabilities previously provided against Hosted Casino revenue through the resolution of a dispute with a significant supplier of games. In Q4 2011, revenue from this segment was $6 million (Q3 2011: $6.5 million).

Branded games revenue increased 25 percent to $6.9 million in 2011 (2010: $5.5 million), accounting for approximately 25 percent of total revenues (2010: 21 percent). In Q4 2011, revenue from this segment increased to $1.9 million (Q3 2011: $1.4 million).

During the year, the Cryptologic’s revenue producing games increased from 170 to 212 games. There was also a reduction of $500 000 in liabilities previously provided against branded games revenue through the resolution of a dispute with a significant supplier of games, partially offset by a lower contribution from a major licensee.

In June a $4.2 million jackpot win was paid on Millionaires’ Club, the company’s popular online slot game, to a player on SkyVegas.com.

Poker and other revenue continued to languish at $1.2 million in 2011 (2010: $2.8 million).

Cash and cash equivalents as at December 31, 2011 increased to $16.6 million (September 30, 2011: $15.2 million) (December 31, 2010: $10.6 million). The increase in cash during 2011 of $6 million is primarily due to net cash flows from operating activities and cash received from sale of investment.

Litigation is still ongoing in a year-old case where a brand licensor sought to terminate a brand license agreement with Cryptologic, claiming that the software company was in breach. Since then the legal argument and filings has been ongoing, and no resolution has yet been reached.

In January 2012, Cryptologic announced that it had acquired the Maltese online gambling licenses for InterCasino from OIGE, the company’s largest and longest-standing Hosted Casino licensee, resulting in the Cryptologic becoming an online casino owner and the majority of the Hosted Casino business becoming a B2C business.

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