CryptoLogic Remains Solidly Profitable In First Quarter Of 2002; Profitable Targets Established For Balance Of Year
TORONTO--(BUSINESS WIRE)--April 30, 2002--CryptoLogic Inc.,
(NASDAQ:CRYP) (TSE:CRY) a leading software supplier to the Internet
gaming and e-commerce industries, is pleased to announce financial
results for the first quarter of 2002 and profitable targets for the
balance of the year.
In the quarter ended March 31, 2002, the Company generated net
income of $2.2 million on revenue of $8.7 million. Total cash at the
end of the quarter was $34.4 million.
"CryptoLogic remained solidly profitable and in line with guidance
in what was a transitional quarter for the industry," said Jean
Noelting, President and CEO. "This is a testimony to the strength of
our international business base, and an endorsement of the Company's
strategy to remain focused on growing the business globally in markets
that embrace on-line gaming."
"We continue to maintain that the toughest quarter is behind us,"
Noelting added. "While the impact of the U.S. credit card issue will
continue to be felt, we expect the Sports.com Casino and the launches
of Littlewoods Casino, Ritz Casino, Dukes Casino and our new Bingo
product will help bring about a return to earnings growth in the
second half of the year."
As such, the Company is providing the following updated guidance
for 2002:
Second Quarter 2002 projections:
-- Revenue between $9.5 million and $10.5 million;
-- Net Income between $2.5 million and $3.0 million; and,
-- Diluted EPS between $0.19 and $0.22.
Fiscal 2002 projections:
-- Revenue between $44.0 million and $46.0 million;
-- Net income between $13.5 million and $15.0 million; and,
-- Diluted EPS between $1.01 and $1.12.
Financial Highlights
As expected, first quarter revenue decreased year-over-year to
$8.7 million, compared with $10.9 million in the first quarter of
2001. The decrease was principally due to the decision in the fourth
quarter of 2001 by certain U.S.-based banks to limit the use of their
credit cards for Internet gaming transactions and the resulting delay
in the realization of revenue as U.S. players moved to alternate forms
of payment.
"Lower revenue in the quarter reflects the short-term challenge
being faced by the entire industry as it adjusts to the impact of the
U.S. credit card situation. This pressure was anticipated, and has
been factored in to our projections for the year," Noelting added.
"That said, by the end of the quarter approximately 50% of the revenue
decrease experienced in December 2001 had been recovered."
Net income in the quarter was $2.2 million, or $0.18 per share
($0.16 per diluted share), compared with net income of $5.2 million,
or $0.37 per share ($0.34 per diluted share), in the first quarter of
the prior year. Net margin for the first quarter was 25%.
Net income was affected in part by a 78% decrease in interest
income to $0.2 million from $0.8 million in the first quarter of 2001,
due to lower prevailing interest rates and decreased cash reserves
than in the corresponding period of the previous year.
The Company remained well funded, with $34.4 million in total cash
on the balance sheet at March 31. Significant uses of cash during the
quarter included the utilization of both Substantial and Normal Course
Issuer Bids to buy back common shares as a means of enhancing
shareholder value, and an investment in Sports.com to further the
Company's international growth strategy.
Under the Substantial Issuer Bid that expired on January 11, 2002,
the Company repurchased 1,004,934 common shares at a total cost of
$17.8 million, including fees. CryptoLogic also continued to make use
of its Normal Course Issuer Bid, which expires on May 17, 2002,
repurchasing 165,500 common shares during the quarter at a cost of
approximately $2.0 million. The Company intends to renew its Normal
Course Issuer Bid for the May 2002-May 2003 period.
In February, the Company expanded its presence in the European
market by securing a long-term licensing and purchase option agreement
with Sports.com, Europe's leading digital sports channel, through an
investment of approximately $6.0 million. With over 4.0 million unique
audited users of its sports content and U.K.-regulated sports wagering
services per month, Sports.com boasts tremendous European coverage.
The Sports.com Casino is the first licensee site to initially go live
with CryptoLogic's suite of Java casino games, launched in February.
Outlook
Despite the short-term impact of the U.S. credit card situation,
Management is confident in its projections for 2002, in the long-term
vitality of the Internet gaming industry and in the fundamental
strength of the Company and its business model. The Company remains
focused on profitable growth by expanding its presence worldwide,
primarily in Europe and Asia, with brand-name licensees; by remaining
a leader in regulatory compliance; and, by adding products through
development or acquisition to drive organic growth of licensee sites
and enter new vertical gaming markets.
The above forward-looking statements are based on the Company's
current expectations, and are subject to risks and uncertainties.
Actual results may differ materially.
Conference Call and Webcast
A conference call and webcast to discuss these results and the
Company's outlook will be held at 8:30 a.m. Toronto time on Tuesday
April 30, 2002. Interested parties should call 416-695-5801 or
1-800-478-9326, or visit
and click on Investor
Info. A replay of the call can be accessed by calling 416-695-5800 or
1-800-408-3053 and entering passcode 1135626, or at
.
About CryptoLogic
CryptoLogic Inc. is the leading software development company
serving the Internet gaming market. The company's proprietary
technologies enable secure, high-speed financial transactions over the
Internet. CryptoLogic continues to innovate and develop state of the
art Internet software applications for both the electronic commerce
and Internet gaming industries. WagerLogic, a wholly owned subsidiary
of CryptoLogic, is responsible for the licensing of its gaming
software and services to customers around the world.
CryptoLogic's common shares trade on the Toronto Stock Exchange
under symbol the CRY and on the Nasdaq National Market under the
symbol CRYP. There are currently 12.0 million common shares
outstanding (14.4 million shares diluted). For more information, visit
and
Link Removed ( Old/Invalid) .
CRYPTOLOGIC FORWARD LOOKING STATEMENT DISCLAIMER:
Statements in this press release which are not historical are
forward-looking statements made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Investors are
cautioned that all forward-looking statements involve risks and
uncertainties, including without limitation risks associated with the
Company's financial condition and prospects, legal risks associated
with Internet gaming and risks of governmental legislation and
regulation, risks associated with market acceptance and technological
changes, risks associated with dependence on licensees and key
licensees, risks relating to international operations, risks
associated with competition and other risks detailed in the Company's
filings with securities regulatory authorities. These risks may cause
results to differ materially from those projected in the
forward-looking statements.
CRYPTOLOGIC INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. Dollars)
(Unaudited)
As at As at
March 31, 2002 December 31, 2001
ASSETS
Current assets:
Cash and cash equivalents $ 19,815 $ 42,822
Restricted cash 14,540 16,800
Reserve with processors 981 144
Accounts receivable 1,658 697
Income taxes recoverable - 408
Prepaid expenses and other 1,212 768
--------- ---------
38,206 61,639
Investments 8,413 2,480
Capital assets 3,063 2,949
Intangible assets 310 337
Goodwill 1,040 1,040
--------- ---------
$ 51,032 $ 68,445
--------- ---------
--------- ---------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,038 $ 2,704
Accrued liabilities 1,119 1,389
Income taxes payable 98 -
Funds held on deposit 4,043 3,263
--------- ---------
7,298 7,356
--------- ---------
Shareholders' Equity:
Capital stock 8,590 8,720
Retained earnings 35,144 52,369
--------- ---------
43,734 61,089
--------- ---------
$ 51,032 $ 68,445
--------- ---------
--------- ---------
CRYPTOLOGIC INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. Dollars)
(Unaudited)
For the three months ended
-----------------------------------
March 31, 2002 March 31, 2001
Revenue $ 8,664 $ 10,865
--------- ---------
Expenses
Software development and support 4,791 4,963
General and administrative 1,224 783
Finance 137 75
Amortization 197 63
--------- ---------
6,349 5,884
--------- ---------
Income from operations 2,315 4,981
Interest income 175 790
--------- ---------
Net income before taxes 2,490 5,771
Provision for income taxes 286 589
--------- ---------
Net income $ 2,204 $ 5,182
--------- ---------
--------- ---------
Earnings per share
Basic $ 0.18 $ 0.37
Diluted $ 0.16 $ 0.34
Weighted Average Number of
Shares ('000s)
Basic 12,210 14,038
Diluted 13,569 15,252
Cryptologic Inc.
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of U.S. Dollars)
(Unaudited)
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
------------------------------------------
Number of Stated Number of Stated
Shares Value Shares Value
('000s) ($) ('000s) ($)
Common shares:
Balance, beginning
of period 13,137 8,448 14,079 6,455
Repurchase of shares (1,170) (367) (119) (40)
Exercise of stock
options 25 237 87 420
------------------ ------------------
11,992 8,318 14,047 6,835
------------------ ------------------
Series c warrants:
Balance, beginning
of period - - 160 22
------------------ ------------------
Balance, end of
period - - 160 22
Series f warrants:
Balance, beginning
of period 30 272 - -
------------------ ------------------
Balance, end of
period 30 272 - -
------------------ ------------------
Total capital stock 12,022 8,590 14,207 6,857
------------------ ------------------
Retained earnings,
beginning of period 52,369 51,133
Net income 2,204 5,182
Excess of purchase price
of treasury shares
over stated value (19,429) (1,175)
--------- ---------
Retained earnings, end
of period 35,144 55,140
--------- ---------
Total shareholders'
equity 43,734 61,997
--------- ---------
--------- ---------
Cryptologic Inc.
Statement of Cash Flows
(In thousands of U.S. Dollars)
(Unaudited)
Three Months Ended
March 31, 2002 March 31, 2001
-----------------------------------
Cash provided by (used in):
Operating activities:
Net income $ 2,204 $ 5,182
Adjustments to reconcile
income to
Cash provided by (used in)
operating activities:
Amortization 197 63
Changes in operating
assets and liabilities:
Restricted cash 2,260 (500)
Reserves with processors (837) (206)
Accounts receivable (961) 979
Prepaid expenses and other (444) (380)
Income taxes 506 625
Accounts payable (666) (616)
Accrued liabilities (270) 207
Funds held on deposit 780 395
--------- ---------
2,769 5,749
--------- ---------
Financing activities:
Issue of capital stock for
cash 237 420
Repurchase of common
shares (19,796) (1,215)
--------- ---------
(19,559) (795)
--------- ---------
Investing activities:
Additions to capital
assets (284) (65)
Investments (5,933) (921)
--------- ---------
(6,217) (986)
--------- ---------
Increase in cash and cash
equivalents (23,007) 3,968
Cash and cash equivalents,
beginning of period 42,822 42,696
--------- ---------
Cash and cash equivalents,
end of period $ 19,815 $ 46,664
--------- ---------
--------- ---------
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at March 31, 2002
(Unaudited)
Inc. ("the Company") have been prepared in accordance with Canadian
generally accepted accounting principles using the same accounting
policies as were used for the consolidated financial statements for
the year ended December 31, 2001, except as described below in a
change in accounting policy (note 1). These consolidated interim
financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31,
2001, as set out in the 2001 Annual Report.
1. Change in Accounting Policy
Effective January 1, 2002, the Company adopted the new
Recommendations of the Canadian Institute of Chartered Accountants
with respect to the accounting for stock-based compensation and other
stock-based payments. The new Recommendations are applied
prospectively to all stock-based payments to non-employees, and to
employee awards that are direct awards of stock, call for settlement
in cash or other assets, or are stock appreciation rights that call
for settlement by the issuance of equity instruments, granted on or
after January 1, 2002. Outstanding grants as at January 1, 2002 that
call for settlement in cash or other assets or stock appreciation
rights that call for settlement in equity instruments are applied
retroactively, without restatement. The Company does not have any such
grants as at January 1, 2002 and as such will apply the new
recommendations prospectively.
In accordance with the new standard, the Company will continue its
existing policy that no compensation cost is recorded on the grant of
stock options to employees. Consideration paid by employees on the
exercise of stock options is recorded as share capital. However, under
the new standard the Company is required to provide additional pro
forma disclosures for options granted to employees as if the fair
value based accounting method had been used to account for employee
stock options.
The fair value of the options granted were made using the
Black-Scholes option pricing model using a dividend yield of 0% and
the following weighted assumptions.
Risk-free rate 2.0%
Expected volatility 100.0%
Expected life of options in years 5.0
of the employee stock option awards granted on or after January 1,
2002, in accordance with the new recommendations, the Company's net
income and earnings per share would have been changed to the following
amounts:
As reported Pro forma
('000) ('000)
Net income $ 2,204 $ 2,134
Net income per share
Basic $ 0.18 $ 0.18
Diluted $ 0.16 $ 0.16
In February 2002 the company acquired an option to purchase 100%
of the shares of SCG Enterprises Limited (SCGE) an Internet gaming
operator, for $5,933,000. The exercise price for the shares is 1 Pound
Sterling, and the option expires February 2005.
3. Substantial Issuer Bid
On January 11, 2002 the Company purchased 1,004,934 CryptoLogic
common shares at a price of CDN$28.00 per share for a total cost,
including transaction costs, of CDN$28,353,000 (US$17,763,000).
4. Normal Course Issuer Bid
In May 2001, the Board of Directors approved the repurchase and
cancellation of up to 656,000 of the Company's outstanding common
shares for the period commencing May 18, 2001 and ending May 17, 2002.
As at March 31, 2002, the Company under this plan has cumulatively
repurchased and cancelled 440,500 common shares, of which 165,500
common shares were repurchased and canceled during the period January
1, 2002 to March 31, 2002 at a cost of $2,033,000.
5. Contingencies
The Company has been named in several lawsuits incurred in the
ordinary course of business. In the opinion of Management, the claims
are without merit and no provision has been made in the accounts.
6. Subsequent Events
On April 8, 2002, the Company sold 100% of its investment in Dot
Com Entertainment Group Inc. (DCEG-OTCBB), representing 1,055,700
common shares for $1,056,000.
CONTACT:
CryptoLogic Inc.
Jean Noelting, 416/545-1455
or
James Ryan, 416/545-1455
or
Sean Stokes, 416/545-1455
Fax: 416/545-1454
or
Media Inquiries: Argyle Rowland Worldwide
Daniel Tisch, 416/968-7311, ext. 223
dtisch@argylerowland.com
or
Aline Nalbandian, 416/968-7311, ext. 226
aline@argylerowland.com
SOURCE: CryptoLogic Inc.
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04/30/2002 07:03 EASTERN
