Cryptologic Inc. (CRYP)
Q1 2010 Earnings Call
May 7, 2010 8:30 am ET
Brian Hadfield – President, Chief Executive Officer
Stephan Taylor – Chief Financial Officer
Brian Kinstlinger – Sidoti & Company
[Gary Devorchuck – Channel Island Partners]
[Marc LeDuc – Private Investor]
Welcome to the 2010 first quarter financial results conference call. I would now like to turn the meeting over to Mr. Brian Hadfield.
Previous Statements by CRYP
» Cryptologic Inc. Q4 2009 Earnings Call Transcript
» CryptoLogic Limited Q3 2009 Earnings Call Transcript
» CryptoLogic Limited Q3 2009 Earnings Call Transcript
Welcome to Cryptologic’s conference call for the first quarter of 2010. I’m Brian Hadfield, President and CEO of Cryptologic. With me here in Dublin is Steve Taylor, our Chief Financial Officer.
Q1 was a difficult quarter for Cryptologic as the benefits of our operational progress have taken longer than we had hoped to bear fruit and ultimately translate into revenues. Despite a strong January, first quarter revenues were impacted by sluggish wagering activity across our licensee base and an unanticipated decline from a key customer transition last year.
In addition, a six-week delay in software implementation of Inter Casino hampered the full launch of a new branding and streamlined registration process, thereby pushing back the start of a major new marketing and advertising campaign. That said, Q2 has started well with revenues to date, and to the same period in the previous quarter.
The hosted casino business continues to be the focus of aggressive management action and we expect its performance to improve. The operational team in this segment has also been strengthened. We’ve delivered all new virtual casino lobby which together with the re-branding and re-launch by Inter Casino and back to a major advertising and marketing campaign, represents the first such major investments in many years aimed at driving long term growth.
In addition, Cryptologic’s full internet casino hosting suite for Betsafe.com is expected to live this month. Our customer base continues to expand with the signing of multi-year licensing deals for branded casino games with William Hill, Bet 24, and Betson.
With regard to William Hill, as you’re aware, much of their casino franchise has been transitioned to another environment so their players have the option to remain with the Cryptologic casino from here on.
Additionally, we expect to rebuild licensing revenues with William Hill through our branded games, nine of which will launch by the end of the first quarter, so revenues will begin to ramp up from Q2 onwards.
We’ve also made solid progress in other important respects. Our cost base continues to shrink due to ongoing initiatives to streamline the business. Operating expenses were reduced by 36% and general and administrative expense by 12% in Q1 compared with the previous quarter.
On a constant currency basis, our overall costs, which includes operating, G&A, finance and amortization, has been cut by approximately 21% compared with the first quarter of 2009. The employee numbers decreased from 211 to 198 during the quarter and is down from 246 in Q1 2009.
Our branded games licensing segment continues to gain traction, increasing revenues for a fifth consecutive quarter with 26 new branded games launched in the period. 18 of these games were not launched by licensees until well into the last month of the quarter so their revenue contribution will start to flow through from Q2.
There are now a total of 108 branded games launched by licensees to date, which a notable achievement is given that there were just three introductions at the end of the first quarter last year. With a further backlog of approximately 92 games expected to go live in 2010, the prospects of steady growth in branded games remains excellent.
Our games portfolio remains strong and we are developing some of the most innovative games in the industry. During the quarter, we released six 3D games as part of a targeted launch. These were created to capitalize on the rapidly growing popularity of the 3D movie genre and will help to cement our reputation for creativity and cutting edge content.
We believe 3D games will provide a new level of gaming experience and become an important new factor for the industry long term. In time for the world cup, we will shortly also be launching into football themed games.
I will now turn the call over to Steve Taylor for some analysis of our financial results.
Thank you, Brian. I remind you that Cryptologic continues to report in U.S. dollars. Cryptologic revenue decreased to $7.6 million in the first quarter, down from $9.9 million in Q4, 2009. As Brian commented, this reflected subdued wagering activity and reduced contribution from a key customer transition last year as announced previously.
After normalizing for an $800,000 benefit recorded in Q4, 2009 from the revision of our jackpot policy, revenue decreased by 15.9%. The average revenue per branded game was $5,600 per game month compared with $7,870 in the last quarter of 2009.
Operating expenses were $8.1 million for the quarter, down 36% from $12.6 million in Q4, reflecting our ongoing focus on taking cost out of the business. Included in Q4 2009 operating expenses were one time items of $1.t5 million related to the re-launch of a major licensee brand and $1.9 million in impaired assets removed from the year end balance sheet. After excluding the impact of these items, operating expenses were reduced by $1.1 million or 11% in Q1 2010.
General and administrative expense decreased 12% to $2.2 million in Q1 from $2.5 million in Q4. Cryptologic ended the quarter with $19.7 million in net cash or $1.42 per diluted share, down from $23.7 million or $1.91 per diluted share in the fourth quarter. The decrease was due to the timing of a tax payment of $1.4 million, which is ultimately recoverable, and the cash impact of the operating losses of $2.4 million.