Tough Second Quarter Hits Crypto

11 August 2008

As expected, second-quarter revenue for CrytpoLogic Ltd. dipped by 8.1 percent versus the previous quarter. While analysts are expecting a slow third quarter, the fourth quarter looks to be where the software developer's business may regain momentum.

Across the board, it was a challenging quarter for the Dublin company. Revenue for its flagship casino software business fell 12.9 percent, quarter over quarter, to $10.8 million on the 2008 UEFA European Championship, warm weather in key markets and unusually large jackpot wins.

Crypto's poker business, meanwhile, dropped a further 14.2 percent versus the previous quarter, with revenue of $3.6 million.

While the company announced two new licensing deals on the release of its results Friday -- both for casino software -- the news was not enough to cheer analysts wary of CryptoLogic's struggle with poker liquidity.

"Despite signing up multiple partners, we continue to believe poker liquidity needs to be addressed or the company is at risk of losing William Hill as a client (est 20% of rev)," Todd Eilers, an analyst with Roth Capital Partners in California, wrote in a research note Friday.

"I see CryptoLogic's results were disappointing with the commentary focused on growth going forward," echoed a United Kingdom analyst in an e-mail to IGamingNews Friday. "If you listen to the William Hill call last week there was a hint that they might leave, which would be disastrous for Crypto unless they sign up a few more licensees very quickly."

Roth Capital is projecting a "soft" third quarter with the loss of Sportech as a licensee, the Olympics and further poker declines.

"Sportech/Littlewoods represented only 4% of revenue, but that is very high margin revenue that they will lose," Mr. Eilers told IGN in an e-mail last week.

The fourth quarter, however, is where the company will begin to see contributions from poker licensing deals signed with of Scandinavia, Maharajah Club of the United Kingdom, Khel Galli of CuraƧao and Betjacks of Ireland.

The company also expects seasonality -- cold weather in the Northern Hemisphere, this time -- to help boost casino revenue during the fourth quarter, which Roth Capital estimates will come in at a 2008 quarterly best of $13.5 million.

Crypto has signed seven new licensing agreements in the year to date -- five of which were deals done during the second quarter.

The company's most recent licensing agreements with Gaming Media Group Ltd., a former licensee of Boss Media, and British Sky Broadcasting Group will be launched by the fourth quarter of 2008 and second quarter of 2009, respectively.

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