Toronto — CryptoLogic Inc., 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.
ryptoLogic 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 Thaibet 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.
