CryptoLogic delivers record revenue & strong earnings growth in
Q1 2005 First quarter revenue up 33%, earnings up 27% Disciplined
execution, strategic investments drive "blue-chip" performance in
both poker and casino TORONTO, May 11 /PRNewswire-FirstCall/ --
CryptoLogic Inc., a leading software developer to the global
Internet gaming market, announced today its financial results for
the first quarter ended March 31, 2005. Record revenue, strong
earnings and positive operating cash flow generation reflected
continued growth in the company's primary Internet casino and poker
markets. "CryptoLogic's excellent start to 2005 reaffirms our
position as the blue-chip e-gaming software company," said Lewis
Rose, CryptoLogic's President and CEO. "CryptoLogic is clearly
benefiting from its investment in growth, and we will continue to
invest in order to maximize returns at this exciting time in our
industry. The landmark legislation to regulate Internet gaming in
the UK for the first time is further evidence of the global
potential and growing acceptance that this industry is here to
stay."
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Financial Highlights Three months ended (in millions of US dollars,
March 31, except per share data) 2005 2004
-------------------------------------------------------------------------
Revenue $20.3 $15.2 Earnings $4.8 $3.8 Earnings per diluted share
$0.34 $0.28
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Fiscal 2005 first quarter highlights included: - Quarterly revenue
grew 33% to $20.3 million, and earnings grew 27% over Q1 2004 to
$4.8 million or $0.34 per diluted share. This exceeded analysts'
average consensus of $0.30 per diluted share; - Internet poker fees
derived from its WagerLogic subsidiary rose by more than 200% over
Q1 2004, and accounted for over 25% of Q1 2005 revenue. Continued
growth from Internet poker licensees and poker tournament software
enhancements contributed to these strong results; - The central
poker room shared by WagerLogic licensees now attract more than
6,000 simultaneous live online players, and is one of the world's
top 5 revenue generating poker sites on the Internet; - Internet
casino revenue derived from WagerLogic enjoyed healthy growth,
rising 6% over Q1 2004; - Version 6 of the company's casino
software was also released in Spanish, French, Italian and German,
contributing to international appeal and European growth; -
Geographic diversification continued to be strong with licensees'
revenue from international markets growing to over 65% of total
revenue, up from over 60% in 2004; - CryptoLogic's blue-chip status
was reinforced in both the North American and UK markets: the
company was added to the main S&P/TSX Composite Index in
Canada; and expanded its shareholder base in the UK by attracting a
number of prominent institutional investors; - Quarterly dividend
of $0.05 per share, payable on June 15, 2005 to shareholders of
record as at June 8, 2005; - Subsequent to quarter end, WagerLogic
announced an exclusive, multi-year agreement for the Internet
rights to the first online slot version of Bejeweled, an
exceptionally popular game on the Internet; and - In April 2005,
the British government enacted a law to regulate online gaming in
the UK for the first time - a position that CryptoLogic has long
advocated. This marks an historic first step for this major
jurisdiction to establish world-class standards for the safe,
secure and responsible use of this form of entertainment. Strong
First Quarter Performance (all financial figures expressed in US
dollars) In the first quarter ended March 31, 2005, CryptoLogic
achieved record revenue, which rose 33% to $20.3 million (Q1 2004:
$15.2 million). EBITDA(1) for the quarter grew 26% to $5.8 million
(Q1 2004: $4.6 million). Despite increased costs associated with
investing in the growth of the company's business to drive higher
revenue generation, EBITDA(1) margin for the quarter remained solid
at 29% as a percentage of revenue (Q1 2004: 30%). Earnings for the
quarter rose 27% to $4.8 million or $0.34 per diluted share (Q1
2004: $3.8 million or $0.28 per diluted share). These strong gains
reflected solid organic growth from existing customers in the
company's core casino market, and the fast-growing Internet poker
arena. CryptoLogic continued to benefit from the early returns from
its major investment program, which is aimed at significantly
enhancing the company's game and service offering and system
infrastructure to support its customers' growing online operations.
Given the considerable growth opportunities that are available to
the company, CryptoLogic is further enhancing its software, systems
and product offerings. This extends the major investment program
from Q3 2004 to the end of 2005, now planned at $12.5 million. Over
the last three quarters, more than 65%, or $8.4 million of this
program, has been invested as follows: $3.2 million in operating
costs and $5.2 million in capital expenditures (comprising $3.2
million for the purchase of capital assets and $2.0 million in
capitalized software development related to the investment
program). Balance Sheet Strength CryptoLogic's financial strength
continued to be reflected in its healthy operating cash flow and
strong balance sheet. At March 31, 2005, the company had no debt,
and total cash grew to $90.2 million or $6.36 per diluted share
(comprising cash and cash equivalents, short term investments, and
including security deposits of $7.0 million). CryptoLogic's working
capital rose to $70.3 million or $4.96 per diluted share. On May 9,
CryptoLogic's Board declared the next quarterly dividend of $0.05
per share, payable on June 15, 2005 to shareholders of record as at
June 8, 2005. Operating cash flow for the first quarter of 2005 was
$2.6 million (Q1 2004: $5.1 million). This decline was largely
attributed to increased receivables resulting from two licensees
assuming responsibility for their own e-cash processing, prepayment
of royalty licensing fees related to new games in development and
reduced payables and accruals. Geographic Diversification
CryptoLogic's blue-chip results reflect the steady profitability of
a business that is well diversified across the world's major
Internet gaming markets. Revenue generated from licensees'
international players grew to over 65% of first quarter revenue, up
from over 60% in 2004. The UK and other European markets remained
solid contributors each at more than 30% of overall revenue in the
quarter, which was up from 30% and 20% respectively in 2004.
CryptoLogic enhanced the global appeal of its software by releasing
Version 6 of its casino software in Spanish, French, Italian and
German. European players now enjoy a greater variety of games,
including progressive jackpot and slot games and classic card
favourites--in their native languages. Product Expansion The
Internet poker industry continues to enjoy strong momentum, with
growth forecasts of more than 100% for 2005 (source: Global Betting
& Gaming Consultants). CryptoLogic's investment in its poker
software and network scalability continued to produce excellent
results: fees earned from Internet poker rose more than 200% over
Q1 2004, and accounted for more than 25% of total Q1 2005 revenue.
WagerLogic's new six-seat poker tournament feature, which is
branded SIXPAK(TM), was a contributing factor to this growth. The
software delivers "final-table" action throughout an entire
tournament event and expands licensees' tournament offerings to
their players. The central poker room shared by licensees continued
to reach new heights in popularity, now attracting more than 6,000
simultaneous online players. Internet casino remained a major
contributor, accounting for 65% of total revenue and growing 6%
over Q1 2004 revenue even in this more competitive and increasingly
sophisticated game segment. The Internet casino industry - which
represents less than five percent of the world's land-based casino
market (source: Global Betting & Gaming Consultants) -
continues to offer vast growth potential. New product innovation
and market-targeted games are key growth drivers in the Internet
casino market. This imperative was underscored by WagerLogic's
recently announced five-year exclusive agreement for the Internet
rights to the slot version of Bejeweled, which will be one of the
exciting games included in a new casino Bonus Pack scheduled for
release this autumn. Having garnered multiple Game of the Year
awards, the play-for-fun version of Bejeweled continues to be one
of the most popular titles with Internet players on AOL, Yahoo! and
MSN. Regulatory Commitment and New UK Law CryptoLogic has
consistently advocated regulation of Internet gaming for the
protection of players and the credibility of the industry. The
company welcomed the British government's recent enactment of a law
to regulate Internet gaming in the UK for the first time - this
will establish world-class standards for the safe, secure and
responsible use of this form of entertainment in one of
CryptoLogic's major markets. While the revised Gambling Act 2005
has become law, it is expected to take more than 12 months to fully
establish and implement the new regulatory regime, during which
time CryptoLogic will closely monitor its progress. The first
applications are expected to be accepted in 2006, with licenses
granted and operational in 2007. As one of the world's few
suppliers with government-approved gaming software--and with a
customer list that includes some of the best names in UK
gaming--CryptoLogic's compliance to the highest regulatory
practices is an important competitive advantage as more
jurisdictions make the sensible choice to regulate interactive
gaming. Enhanced Investor Profile In January 2005, CryptoLogic's
shareholder base diversified through new UK institutional investors
having acquired approximately 8% of the company's then outstanding
shares. This should contribute to the company's liquidity on the
London Stock Exchange. During the quarter, Standard & Poor's
also added CryptoLogic to the main S&P/TSX Composite Index and
to the S&P/TSX SmallCap Index in the information technology
sector. Inclusion on the premier benchmark for Canadian equity
markets highlights CryptoLogic's market strength and exciting
growth. Outlook CryptoLogic's disciplined execution and focused
investments in its primary growth markets have translated into
early returns and contributed to a strong start in 2005. The second
quarter is traditionally not as strong as the first quarter as
Internet activity tends to soften in early summer. Accordingly,
Management forecasts second quarter revenue to range from
$19.2-$19.6 million, with earnings of $4.2-$4.4 million or
$0.29-$0.30 per diluted share. CryptoLogic's investment in its
business is strengthening the company's global position in both its
core Internet casino and poker markets. With this growth momentum,
CryptoLogic is making further enhancements directed at the key
areas of its business--its casino and poker software offerings,
system infrastructure and scalability, and back-office and customer
care. Capital expenditures for the full year of 2005 are estimated
to be $12.0 million, of which 35% relates to the company's normal
course investment. The balance includes: a move to new office
premises this year to accommodate a growing organization; and the
remaining portion under the company's major investment program to
be capitalized. CryptoLogic's commitment to its business today and
for the future is intended to continue to enhance the company's
global leadership, competitive strength and prospects for
increasing near and long term returns for shareholders. 2005 First
Quarter Analyst Call ------------------------------- A conference
call is scheduled for 8:30 a.m. (Eastern) (1:30 p.m. GMT) on
Wednesday, May 11, 2005. Interested parties should call either
416-695-5259, 1-877-888-3490 (North America) or international toll
free number at (Country Code) 800-4222-8835. Instant replay will be
available until Wednesday, May 18, 2005 by calling 416-695-5275 or
1-866-518-1010. Annual & Special Meeting of Shareholders
---------------------------------------- CryptoLogic's Annual and
Special Meeting of Shareholders will be held at The Design
Exchange, Trading Floor, 234 Bay Street, Toronto, Canada, on
Thursday, May 12, 2005 at 4:30 p.m., Eastern time. About
CryptoLogic(R) (http://www.cryptologic.com/) Focused on integrity
and innovation, CryptoLogic Inc. is the world's largest public
online gaming software developer and supplier. Its leadership in
regulatory compliance makes it one of the very few companies with
gaming software that is certified to strict standards similar to
land-based gaming. WagerLogic Limited, a wholly-owned subsidiary of
CryptoLogic, is responsible for the licensing of its gaming
software and services to an internationally-recognized blue chip
customer base worldwide. For information on WagerLogic(R), visit
http://www.wagerlogic.com/. CryptoLogic's common shares trade on
the Toronto Stock Exchange (symbol: CRY), on the Nasdaq National
Market (symbol: CRYP), and on the London Stock Exchange (symbol:
CRP). (1) Management believes that EBITDA (earnings before
interest, taxes, and amortization) is a useful supplemental measure
of performance. However, EBITDA is not a recognized earnings
measure under generally accepted accounting principles (GAAP) and
does not have a standardized meaning. Therefore, EBITDA may not be
comparable to similar measures presented by other companies.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS CryptoLogic Inc. and our
subsidiaries are referred collectively as "CryptoLogic", "the
Company", "we", "us" and "our" throughout Management's Discussion
and Analysis ("MD&A"), unless otherwise specified. The
following MD&A should be read in conjunction with the unaudited
consolidated interim financial statements of CryptoLogic, including
the notes thereto, for the three months ended March 31, 2005 and
March 31, 2004, and the audited consolidated financial statements
and the MD&A for the year ended December 31, 2004 as set out in
our 2004 Annual Report. Except where otherwise indicated, the
reader may assume that economic and industry factors are
substantially unchanged from the 2004 year-end MD&A. This
MD&A is dated May 11, 2005. Additional information relating to
CryptoLogic, including our Annual Information Form, is available on
SEDAR at http://www.sedar.com/ or EDGAR at http://www.sec.gov/. All
currency amounts are in US dollars, unless otherwise indicated.
BUSINESS OVERVIEW CryptoLogic is a leader and the world's largest
publicly traded online gaming software developer and supplier
serving the global Internet gaming market. WagerLogic Limited
("WagerLogic"), a wholly-owned subsidiary of CryptoLogic, provides
licensing, e-cash management and customer support services for our
Internet gaming software to an internationally-recognized blue chip
client base ("licensees" or "customers") around the world who
operate under government authority where their Internet businesses
are domiciled. OVERVIEW OF RESULTS CryptoLogic delivered strong
first quarter performance in 2005 marked by record revenue, solid
earnings and positive operating cash generation. In the more
competitive and increasingly demanding online casino market,
licensees benefited from WagerLogic's broadening casino offering
and ongoing release of new game choices and variations that help
attract players and increase revenue potential. WagerLogic
licensees' central poker room continued to be one of the fastest
growing poker sites on the Internet, with Q1 2005 growing in excess
of 200% over Q1 2004, and outpaced the industry's growth of 115%
(source: PokerPulse.com, an independent industry research Web
site). Enhanced poker tournament software and expanding poker
system infrastructure were contributing factors to our licensees'
growth in this rapidly-growing game area. Revenue for the first
quarter of 2005 rose 33% to $20.3 million (Q1 2004: $15.2 million).
EBITDA(1) increased by 26% to $5.8 million (Q1 2004: $4.6 million).
Despite increased investments to drive higher revenue generation,
EBITDA(1) margin remained solid at 29% as a percentage of revenue
in 2005 (Q1 2004: 30%). Furthermore, earnings increased by 27% to
$4.8 million or $0.34 per diluted share (Q1 2004: $3.8 million or
$0.28 per diluted share). CryptoLogic's strong balance sheet
continued to be reflected in $90.2 million in cash, cash
equivalents and short term investments (including $7.0 million in
security deposits) at quarter-end. In addition, working capital
grew to $70.3 million. Given the considerable growth opportunities
that are available to the company, CryptoLogic is further enhancing
its software, systems and product offerings. This extends our major
investment program from Q3 2004 to the end of 2005, now planned at
$12.5 million. Over the last three quarters, more than 65%, or $8.4
million of this program, has been invested, which is translating
into early incremental returns as evidenced by strong first quarter
results. RESULTS OF OPERATIONS Revenue Revenue in the first quarter
of 2005 increased by 33% to $20.3 million (Q1 2004: $15.2 million).
Typically one of the seasonally strongest quarters of the year,
CryptoLogic generated record first quarter revenue in 2005. Strong
gains reflected the considerable growth of licensees' Internet
poker activities and continued solid performance in their Internet
casino businesses. The initial returns of our major investment
program have also contributed positively to the Company's top-line
performance. During the quarter, Internet poker fees increased by
more than 200% over Q1 2004. Internet poker fees accounted for more
than 25% of Q1 2005 revenue. This growth was driven by: rising
player traffic to licensees' poker sites, which was supported by
increased system capacity; and continued enhancement of our poker
software, including the introduction of new features such as the
innovative SIXPAK(TM) six-seat tournament option, which expanded
licensees' tournament offerings to their players. As a result,
WagerLogic licensees' central poker room continued to be one of the
fastest-growing rooms on the Internet, and is among the top five
revenue-generating poker sites in the world, according to
PokerPulse, with more than 6,000 live players simultaneously
online. WagerLogic expects to experience continued growth from its
poker licensees as they benefit from an enhanced poker offering and
capitalize on the fast-growing online poker market. CryptoLogic's
Internet casino revenue continued to reflect solid performance and
grew 6% over the same first quarter in 2004. This was evidence of
the continued strength of our existing major brand name licensees
and the benefit of an expanding casino game suite and new game
introductions. Licensees' revenue from international markets
continued a positive trend and rose over 65% of overall revenue, up
from over 60% in fiscal 2004. The UK and Continental Europe
continued to be core markets and grew to account for more than 60%
of revenue (or over 30% each) compared with more than 50% in 2004
(or 30% and 20% respectively). Operating Costs Operating costs
comprise software development and support costs that include all
personnel and compensation costs, licensee support, customer
service costs and compliance-related expenditures. Operating costs
were $12.8 million in the first quarter of 2005 or 63% of revenue
(Q1 2004: $9.0 million or 59%). Higher costs were in line with
CryptoLogic's ongoing investments directed at new casino games,
enhancement of our poker offering, an expanding system
infrastructure to support growing player traffic and volumes, and
enhancement of our customer care and back-office processing and
support services. Operating costs also rose with increased
processing fees associated with growing financial transaction
volumes. In the second half of 2004, CryptoLogic embarked on a
major investment program, which is above and beyond our normal
course expenditures to significantly upgrade our gaming platform
and system and service infrastructure. Given the considerable
growth opportunities that are available to the company, we are
making further enhancements. This extends our major investment
program from Q3 2004 to the end of 2005, now planned at $12.5
million. Over the last three quarters, more than 65%, or $8.4
million of this program, has been invested as follows: $3.2 million
in operating costs and $5.2 million in capital expenditures
(comprising $3.2 million for purchases of capital assets and $2.0
million in capitalized software development associated with the
program). CryptoLogic is already benefiting from the early returns
of these investments as evidenced by strong top-line performance.
Even with higher investments, CryptoLogic's growth expectations for
the year continue on track as we continue to manage expenditures in
proportion to revenue generation. General and Administrative Costs
General and administrative (G&A) expenses rose to $1.6 million
for the quarter (Q1 2004: $1.5 million), but declined to 8% of
revenue (Q1 2004: 10%) due to strong revenue performance. The rise
in G&A costs was principally due to increased facilities and
infrastructure expenditures to support a growing organization.
Given our larger company, G&A expenses will rise modestly,
although are expected to remain fairly consistent as a percentage
of revenue. Finance Costs Finance costs include bank charges and
fees for bank drafts and letters of credit. All letters of credit
are secured by cash deposits, which are classified as security
deposits on our balance sheet. These costs remained fairly
consistent at $0.09 million for both Q1 2005 and the same period in
2004. EBITDA(1) EBITDA(1) for the first quarter of fiscal 2005 rose
by 26% to $5.8 million (Q1 2004: $4.6 million). Despite increased
costs associated with investing in key areas of our business and
infrastructure to support long term growth, EBITDA(1) margin
remained solid at 29% as a percentage of revenue in 2005 (Q1 2004:
30%). EBITDA(1) is expected to remain at solid levels, although
margins are expected to decline as major investments carry into
2005 as planned. (1) Management believes that EBITDA (earnings
before interest, taxes, and amortization) is a useful supplemental
measure of performance. However, EBITDA is not a recognized
earnings measure under generally accepted accounting principles
(GAAP) and does not have a standardized meaning. Therefore, EBITDA
may not be comparable to similar measures presented by other
companies. EBITDA is reconciled to earnings as follows: For the
three months ended March 31,
---------------------------------------------------------------------
(In thousands of US dollars) 2005 2004
---------------------------------------------------------------------
Earnings $4,839 $3,821 Income taxes 795 611 Interest income (637)
(244) Amortization 802 424
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EBITDA $5,799 $4,612
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Amortization Amortization expense during the quarter rose to $0.8
million (Q1 2004: $0.4 million). The increase reflected higher
investments in computer equipment, leasehold improvements, software
and licenses to support our growing organization and the Company's
major investment program. Interest Income Interest income rose to
$0.6 million in the first quarter (Q1 2004: $0.2 million). The
increase was a result of a higher cash position and better interest
yield. Provision for Income Taxes Income taxes for the quarter grew
to $0.8 million (Q1 2004: $0.6 million), primarily due to higher
pre-tax profits and increased taxable income in higher tax
jurisdictions. The future income tax credit of $0.2 million was due
to the effect of the change in foreign exchange rates during the
first quarter of 2005. Earnings Earnings for the quarter rose by
27% to $4.8 million or $0.34 per diluted share (Q1 2004: $3.8
million or $0.28 per diluted share). First quarter results were
ahead of analysts' consensus of $0.30 per diluted share. Summary of
Quarterly Results
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Fiscal Fiscal 2005 2004
-------------------------------------------------------------------------
(In thousands of US dollars, except per share data) Q1 05 Q4 04 Q3
04 Q2 04 Q1 04
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Revenue $20,274 $17,949 $15,616 $14,925 $15,224
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Interest income 637 426 361 262 244
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Earnings 4,839 3,794 2,856 3,197 3,821
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Earnings per share Basic 0.36 0.29 0.22 0.25 0.30 Diluted 0.34 0.27
0.21 0.23 0.28
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Basic weighted average number of shares (000's) 13,573 13,185
13,076 12,979 12,641
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Diluted weighted average number of shares (000's) 14,184 13,871
13,642 13,734 13,419
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------------------------------------------------------- Fiscal 2003
------------------------------------------------------- (In
thousands of US dollars, except per share data) Q4 03 Q3 03 Q2 03
-------------------------------------------------------
------------------------------------------------------- Revenue
$13,540 $10,944 $10,826
------------------------------------------------------- Interest
income 160 196 174
------------------------------------------------------- Earnings
3,033 2,157 2,478
------------------------------------------------------- Earnings
per share Basic 0.25 0.18 0.20 Diluted 0.23 0.17 0.20
------------------------------------------------------- Basic
weighted average number of shares (000's) 12,280 12,256 12,237
------------------------------------------------------- Diluted
weighted average number of shares (000's) 12,972 12,696 12,395
------------------------------------------------------- Typically,
our first and fourth quarters (during the winter and fall seasons)
are our strongest periods, and revenue in the middle two quarters
can slow down as Internet usage moderates in the summer months when
players tend to be outdoors. The sequential increase in Q1 2005
revenue over Q4 2004 was a result of the continued significant
growth in Internet poker fees combined with solid casino revenue,
while managing expenses to produce appropriate returns and drive
revenue generation. LIQUIDITY AND CAPITAL RESOURCES In the quarter,
CryptoLogic continued to add to our strong financial position. As
at March 31, 2005, the Company had no debt, and a cash position of
$90.2 million or $6.36 per diluted share, which comprised cash and
cash equivalents, short term investments, and included $7.0 million
of security deposits. Working capital grew to $70.3 million or
$4.96 per diluted share. Operating cash flow in the first quarter
of 2005 was $2.6 million (Q1 2005: $5.1 million). This decline was
largely due to increased receivables resulting from two licensees
responsible for their own e-cash processing, prepayment of royalty
licensing fees related to new games under development, and reduced
payables and accruals. CryptoLogic currently has 13.7 million
common shares issued and outstanding, and 1.1 million stock options
and warrants outstanding. CRITICAL ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING POLICIES AND OFF-BALANCE SHEET ARRANGEMENTS These items
are unchanged as discussed in the Company's MD&A for the year
ended December 31, 2004 as contained in our 2004 Annual Report.
RISKS AND UNCERTAINTIES The primary risks and uncertainties that
affect and may affect us and our business, financial condition and
results of operations are substantially unchanged from those
discussed in the Company's MD&A for the year ended December 31,
2004 as contained in our 2004 Annual Report. OUTLOOK CryptoLogic's
excellent first quarter performance reflected the continued
execution of our focused strategy and the initial returns of our
investment initiatives targeted at key areas of our business. While
online gaming continues to promise vast market potential, a growing
marketplace means growing competition and increasingly
sophisticated players, as well as the ongoing challenges of US
uncertainty. Given CryptoLogic's strong financial results and
growth momentum, we will continue to invest further in our business
to provide an expanding game and services offering that help our
licensees develop a loyal player community and increase revenue
potential. Capital expenditures for the full year of 2005 are
estimated to be $12.0 million, of which 35% relates to our normal
course investment. The balance includes: a move to new office
premises this year to accommodate a growing organization; and the
remaining portion under the Company's major investment program to
be capitalized. CryptoLogic's commitment to its business today and
for the future is intended to continue to enhance the Company's
global leadership in our primary growth markets of online casino
and poker, competitive strength and prospects for increasing near
and long term returns for shareholders. CRYPTOLOGIC INC.
CONSOLIDATED BALANCE SHEETS (In thousands of US dollars)
-------------------------------------------------------------------------
As at As at March 31, December 31, 2005 2004 (unaudited)
-------------------------------------------------------------------------
ASSETS Current assets: Cash and cash equivalents $69,256 $43,182
Security deposits 7,000 7,000 Short term investments 13,899 35,782
Accounts receivable and other 8,288 6,487 Prepaid expenses 3,092
1,754
-------------------------------------------------------------------------
101,535 94,205 User funds on deposit 20,729 18,908 Capital assets
10,025 9,227 Intangible assets 100 106 Goodwill 1,776 1,776
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$134,165 $124,222
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-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts
payable and accrued liabilities $28,989 $30,056 Income taxes
payable 2,222 1,331
-------------------------------------------------------------------------
31,211 31,387 User funds held on deposit 20,729 18,908 Future
income taxes 1,677 1,840
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53,617 52,135
-------------------------------------------------------------------------
Shareholders' equity: Share capital 24,699 20,380 Stock options
1,101 1,114 Retained earnings 54,748 50,593
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80,548 72,087
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$134,165 $124,222
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CRYPTOLOGIC INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In
thousands of US dollars) (Unaudited)
-------------------------------------------------------------------------
For the three months ended March 31, 2005 2004
-------------------------------------------------------------------------
Retained earnings, beginning of period $50,593 $38,758 Earnings
4,839 3,821 Dividends paid (684) (384)
-------------------------------------------------------------------------
Retained earnings, end of period $54,748 $42,195
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CRYPTOLOGIC INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands
of US dollars, except per share information) (Unaudited)
-------------------------------------------------------------------------
For the three months ended March 31, 2005 2004
-------------------------------------------------------------------------
Revenue $20,274 $15,224
-------------------------------------------------------------------------
Expenses Operating costs 12,754 9,014 General and administrative
1,631 1,506 Finance 90 92 Amortization 802 424
-------------------------------------------------------------------------
15,277 11,036
-------------------------------------------------------------------------
Earnings before undernoted 4,997 4,188 Interest income 637 244
-------------------------------------------------------------------------
Earnings before income taxes 5,634 4,432 Income taxes: Current 958
277 Future (163) 334
-------------------------------------------------------------------------
795 611
-------------------------------------------------------------------------
Earnings $4,839 $3,821
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share Basic $0.36 $0.30 Diluted $0.34 $0.28
Weighted average number of shares ('000s) Basic 13,573 12,641
Diluted 14,184 13,419 CRYPTOLOGIC INC. CONSOLIDATED STATEMENTS OF
CASH FLOWS (In thousands of US dollars) (Unaudited)
-------------------------------------------------------------------------
For the three months ended March 31, 2005 2004
-------------------------------------------------------------------------
Cash flows from (used in): Operating activities: Earnings $4,839
$3,821 Adjustments to reconcile earnings to cash provided by (used
in) operating activities: Amortization 802 424 Future income taxes
(163) 334 Stock options 425 263 Changes in operating assets and
liabilities: Security deposits - (450) Accounts receivable and
other (1,801) 182 Prepaid expenses (1,338) 203 Accounts payable and
accrued liabilities (1,067) (245) Income taxes payable 891 570
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2,588 5,102
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Financing activities: Issue of capital stock 3,881 4,410 Dividends
paid (684) (384)
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3,197 4,026
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Investing activities: Purchase of capital assets (1,592) (764)
Purchase of intangible assets (2) (89) Short term investments
21,883 (22,987)
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20,289 (23,840)
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Increase (decrease) in cash and cash equivalents 26,074 (14,712)
Cash and cash equivalents, beginning of period 43,182 44,010
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Cash and cash equivalents, end of period $69,256 $29,298
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Supplemental cash flow information: Non cash portion of option
exercised $438 $204
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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS As at March 31,
2005 (All figures are in thousands of US dollars, except per share
disclosure and where otherwise indicated) (Unaudited) These
consolidated interim financial statements of CryptoLogic Inc. (the
"Company") have been prepared in accordance with Canadian generally
accepted accounting principles using the same accounting policies
as were used for the audited consolidated financial statements for
the year ended December 31, 2004. These consolidated interim
financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31,
2004, as set out in the 2004 Annual Report. 1. Stock Option Plan In
accordance with the guidelines of the Canadian Institute of
Chartered Accountants, the Company has expensed the costs of all
stock option grants issued on or after January 1, 2003. The fair
value of the options granted in 2004 and 2005 was made using the
Black-Scholes option pricing model under the following weighted
assumptions: 2005 2004 ---- ---- Dividend yield 0.75% 0.75%
Risk-free rate 3.25% 2.75% Expected volatility 50.0% 50.0% Expected
life of options in years 5.0 5.0 The estimated fair value of
options is recorded over the vesting period of the options. The
costs of stock options of $425 in Q1 2005 (Q1 2004: $263) are
included in operating costs. Consideration paid by employees on the
exercise of stock options is recorded as share capital. For the
year ended December 31, 2002, no compensation cost was recorded on
the grant of stock options during that year. In accordance with the
transitional provisions of the accounting guideline, additional pro
forma disclosure is presented as if the fair value method of
accounting had been used to account for stock options. The fair
value of the options granted was made using the Black-Scholes
option pricing model under the following weighted assumptions: 2002
---- Dividend yield - Risk-free rate 2.0% Expected volatility
100.0% Expected life of options in years 5.0 Had compensation
expense been determined based on the fair value of the employee
stock option awards for 2002 grants at the grant dates in
accordance with the new recommendations, the Company's earnings and
earnings per common share would have been changed to the following
pro forma amounts: Three months Three months ended ended March 31,
2005 March 31, 2004 As Pro As Pro reported forma reported forma
-------------------------------- ('000) ('000) ('000) ('000)
Earnings $4,839 $4,658 $3,821 $3,637 Earnings per common share:
Basic $0.36 $0.34 $0.30 $0.29 Diluted $0.34 $0.33 $0.28 $0.27 2.
Share Capital Authorized: Unlimited common shares Issued and
Outstanding: Common Shares Series F Warrants Total Stated Stated
Stated Issued Value Issued Value Value
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('000) ('000) ('000) Balance, December 31, 2003 12,300 $11,078 30
$272 $11,350 Exercise of stock options 1,011 9,030 - - 9,030
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Balance, December 31, 2004 13,311 $20,108 30 $272 $20,380
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Balance, December 31, 2004 13,311 $20,108 30 $272 $20,380 Exercise
of stock options 385 3,893 - - 3,893 Exercise of Series F warrants
23 630 (23) (204) 426
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Balance, March 31, 2005 13,719 $24,631 7 $68 $24,699
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3. Normal Course Issuer Bid In September 2004, the Board of
Directors approved a share repurchase plan, under a Normal Course
Issuer Bid, to repurchase and cancel up to 1,250,000 of the
Company's outstanding common shares for the period commencing
September 23, 2004 and ending September 22, 2005. As at March 31,
2005, the Company has not repurchased any shares under this plan.
4. Comparative Figures Certain of the prior period's figures have
been reclassified for consistency with the current period's
presentation. DATASOURCE: CryptoLogic Inc. CONTACT: CryptoLogic,
(416) 545-1455: Nancy Chan-Palmateer, Director of Communications;
Jenifer Cua, Interim Chief Financial Officer; Argyle Rowland, (416)
968-7311 (Media): Daniel Tisch, ext. 223, ; Karen Passmore, ext.
228,
Copyright