Another good year for Cryptologic

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SOLID 2006 PERFORMANCE FROM CRYPTOLOGIC

Revenue, earnings and earnings per share grow more than 20 percent despite challenging fourth quarter

Top online gambling software developer and turnkey provider Cryptologic has released strong 2006 results showcasing eight new customer sites, 40 new games, new acquisitions and some impressive Asian expansion moves.

The company grew both revenue and earnings by 21 percent to $104.0 million and $24.8 million, respectively. Earnings rose to $1.81 per fully diluted share, a 24 percent increase over 2005, and the company ended a successful year with $128.4 million in total cash.

Cryptologic's strong results and new customer acquisitions follow a time of significant change for the industry, in which the US market was severely impacted by US anti-online gambling legislation and the activities of the US enforcement authorities.

CryptoLogic had already ensured that its licensees would not take wagers from U.S.-based players by the time the legislation was enacted, but the short-term impact of this event on the company's revenue and earnings was heightened as it occurred in the fourth quarter, which is historically the strongest quarter of the year.

Since the company's business was substantially focused in Europe before the legislation, the impact of its passage on CryptoLogic was much less serious than it was for many competitors.

"While 2006 was a challenging year for the industry, it was another record year for Cryptologic - and we enter 2007 with both focus and momentum," said Lewis Rose, CryptoLogic's President and CEO.

"We've launched five new customer sites since December, and have three more in the queue - including two for Holland Casino, Cryptologic's first government-owned customer. With our largest licensees on long-term agreements, and modest revenue expected this year from our new Asian venture, Cryptologic is poised for long-term growth in the European markets of today - and the Asian markets of tomorrow."

CryptoLogic's quarter 4 2006 results were in line with the company's estimates for the quarter with $19.0 million of revenue and $1.7 million in earnings, or $0.12 per share (after deducting an after-tax $1.0 million non-recurring charge, or $0.07 per share, related to reorganisation costs for the proposed establishment of CryptoLogic's new executive headquarters in Ireland).

Since its last quarterly earnings report, Cryptologic has capitalised on the changed industry landscape with a number of significant actions. These include signing new customers, making a strategic acquisition, entering a memorandum of understanding to launch a joint venture in Asia and obtaining a major European government operator as a casino and poker licensee.

Highlights for 2006 include:

New and renewed customers

- Renewed contract with William Hill for three years with exclusive provisions until 2009 under similar financial terms, and launched William Hill's Spanish poker site.

- Launched PlayboyGaming.com's poker site, with the casino site set to launch in the second quarter of 2007.

- Launched sites for Betsafe and Parbet, two growing Scandinavian poker brands.

- Launched DTDPoker, under an exclusive 3-year contract. DTDPoker is the online home of the new UK land-based poker club, DUSKTILLDAWN, expected to be the largest in the UK when it opens in April 2007.

- Signed an exclusive three-year agreement to provide both poker and casino software for Holland Casino, the Netherlands' government-owned casino operator. Subject to certain approvals, the new sites are expected to launch in June 2007.

- Signed a memorandum of understanding with Brilliance Technology Co. and 568 Network Inc. to penetrate the high-growth Chinese market with CryptoLogic's existing games and new games for the Chinese diaspora. Subscription-based "play-for-fun" games are planned to be offered over the Internet and mobile phones. "Play-for-money" games are planned to be offered through retail locations licensed by the China Welfare Lottery, the nation's gaming licensing authority.

- Purchased the poker brand and related assets of Parbet.com, a popular Scandinavian online poker room, and licensed them to a private Maltese online gaming operator.

- Awarded Gambling Online's Top Casino Software Award for the second year running. The award is based on the votes of players from around the world.

- Launched 16 innovative new download casino games, including slots based on Cubis, the popular casual game, and on the Marvel characters Elektra, Ghost Rider and Iron Man.

- Launched 24 new non-downloadable casino games for William Hill, including popular CryptoLogic slot titles such as Bejeweled, the Marvel Jackpot Slot games, and Millionaires Club, which currently offers the largest online jackpot in the world at over $5 million.

- Redesigned CryptoLogic's poker software, including enhancements to the main lobby, game tables and tournament lobby that make it easier than ever for players to navigate, select their game and stake levels, and access key statistics on the game and their play.

The company plans to establish its new executive headquarters in Ireland in 2007, subject to approval from a special meeting of shareholders in the second quarter. The company continues to plan for a new CEO to take office after the establishment of the new headquarters.

Cryptologic achieved record results in 2006. The company reported record revenue of $104.0 million (20.5 percent growth), record EBITDA(1) of $27.2 million (21.8 percent growth), record earnings of $24.8 million (20.9 percent growth) and record diluted earnings per share of $1.81 (24.0 percent growth) for the year ended December 31, 2006.

CryptoLogic accomplished this notwithstanding the U.S. prohibition of Internet gaming in the fourth quarter, and the non-recurring charge of $3.7 million in costs related to establishing the new European headquarters. The strong performance of the first three quarters of the year was partially offset by the impact of the new US legislation in the fourth quarter.

Looking ahead, CEO Rose says that for Quarter 1 2007, CryptoLogic estimates revenues of $18-$19 million. The company expects earnings between $2.5 - $3 million, or $0.18 - $0.21 per diluted share, before the deduction of $1.5 million in pre-tax costs related to the new European headquarters. After those costs are deducted, the company forecasts earnings of $1-$1.5 million, or $0.07 -$0.11 per diluted share.

Approximately $0.6 million in development costs which will be included in the first quarter relate to three new customer sites expected to be launched in the second quarter.

Cryptologic expects 2007 to be a year of transition and growth in both Europe and Asia. Beyond 2007, industry analysts continue to expect strong growth from the European market, which has been Cryptologic's core focus for the last five years. In addition, rapid online growth in Asia is expected in the years to come.

Accordingly, the company has the following long-term financial objectives in future years for its continuing business in Europe and Asia:

- Grow revenue and earnings: 20 percent year-over-year.

- Achieve net margin and return on equity: 20 percent.

- Achieve double-digit, above-market revenue growth in casino and poker.
 

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