Crypto Reports Loss-Making Year as Concern on Launch Delays Rises

18 March 2009
CryptoLogic Ltd. logged a net loss of $32.7 million for the 2008 fiscal year, and while the company is forecasting $8 million in revenue from new customers in 2009, progress so far has been slower than anticipated.

Fourth-quarter losses, glaringly, came in at $25.9 million as non-recurring restructuring expenses mounted and $16 million in long-term assets was written down.

In line with management guidance, annual revenue fell 16.4 percent to $61.5 million, year over year, with fourth-quarter revenue down 44 percent to $11.3 million.

Fourth-quarter casino revenue came in at $7.8 million, down 44 percent compared to the $14 million generated during the previous-year period. Quarterly revenue from poker, $2.7 million, likewise fell 41.3 percent from $4.6 million a year ago.

Having lost two major licensees in 2008, William Hill and Sportech, the company is looking to recover ground by licensing casino games -- รก la carte -- to clients like PartyGaming (October 2008) and 888 Holdings (May 2008), and a full Flash casino to GigaMedia Ltd. (November 2008).

While 888 went live with three games in October -- which generated $500,000 in fourth-quarter casino revenue for Crypto -- PartyGaming, scheduled to go live during the first quarter with six games, has yet to do so, and the GigaMedia launch, also scheduled for the first quarter, has been pushed back to this summer.

More recent deals with Gaming Technology Systems (January 2009) and Orbis Technology Ltd. (December 2008), scheduled to be operational from the first quarter, have been pushed back to the third.

Steven B. Taylor, the company's chief financial officer, said on a conference call Tuesday that 2009 revenue assumptions had been planned on "a very conservative basis," adding that ramp-up is now expected nearer "the back half of the year."

Still, the delays have made analysts leery, with Todd Eilers of Roth Capital Partners slashing new-licensee revenue forecasts from $8 million to $6 million.

"Timing and contribution from new partners is critical as the company's needs to fill the gap from the ramp down of its William Hill contract," Mr. Eilers wrote in a note to clients Tuesday.

The integration of the company's poker licensees into Gtech Corporation's International Poker Network, meanwhile, is scheduled to be completed tomorrow. Expenses associated with that integration, however, came in at $3.1 million during the fourth quarter.

With first-quarter revenue expected "to be quite similar to what it was in Q4," Mr. Taylor said, concern lingers over cost control and profitability.

Management guidance for the full year still calls for net profits of between $9 million and $10 million, cash generation of between $11 million and $13 million and operational cost savings of $13 million.

On Tuesday, CryptoLogic announced a content licensing deal with Paramount Digital Entertainment for rights to films like "Braveheart" and "Forrest Gump." The first of those branded games is due for release in the fourth quarter.

Between the third and fourth quarters, the company mitigated its cash burn and ended the quarter with net cash of $43.8 million, down 10.6 percent. Between the second quarter and the third, net cash fell 24.3 percent.

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