Crypto Books $5.8 Million Third-Quarter Loss

13 November 2008

Shares in CryptoLogic Ltd. dipped 26 percent on Nasdaq in mid-afternoon trading after the company reported a $5.88 million net loss for the third quarter.

On paper, it's been a challenging year for the Dublin company. Although it has inked 10 licensing deals and, just yesterday, a landmark agreement to migrate its poker licensees to Boss Media A.B.'s IPN network, the returns have still to manifest on financial statements.

At the top line, total revenue was down 5.9 percent to $50.2 million across the nine months ending Sept. 30. Third-quarter revenue, $14 million, fell 16.4 percent, sequentially.

Casino, the company's core product, generated $10.1 million, down 6.4 percent, quarter on quarter, and 11.4 percent versus last year. Poker, too, fell 11 percent to $3.2 million, sequentially, and 33 percent year over year.

"I still think we have two to three more quarters to go before we start to see any improvement," Todd Eilers, an analyst with Roth Captial Partners in California, told IGN.

On today's earnings call, Chief Executive Brian H. Hadfield said given challenging market conditions and CryptoLogic's recent change in strategy, ambitions of achieving $104 million in revenue by yearened 2009 have been shelved.

Stephen B. Taylor, the company's chief financial officer, said that in the 2009 fiscal year, he would be disappointed if its new licensees -- which include GigaMedia Ltd. and PartyGaming -- generated $5 million in revenue but surprised if they produced $25 million.

William Hill, thought to be the company's second-largest licensee after the Inter group of clients, will take Playtech's casino and poker software on an exclusive basis from 2010.

Mr. Hadfield said that Hills will continue to take Crypto's casino software through the transition, but the switch to Playtech's poker software may come sooner. Final terms on the poker software switch, however, have still to be ironed out, he said.

Mr. Eilers said in a note today that he expects William Hill's poker site to be online with Playtech by the first quarter of 2009.

Analysts, meanwhile, were curious about the revenue split with Boss Media's parent company, Lottomatica S.p.A. Mr. Hadfield said that "market rates" would apply, but only went so far as to qualify that CryptoLogic would receive the "lion's share" of the proceeds.

The move to the IPN network, Mr. Hadfield reemphasized, will afford the company between $12 million and $15 million in annual cost savings. He also said that in an effort to cut costs, the company's staff -- around 300 employees -- had already been reduced by 10 percent.

In today's results statement, the company said it is cautiously optimistic on 2009. It has no debt and net cash of $48.7 million.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.