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Article Excerpt
OPERATOR: Good morning, ladies and gentlemen. Welcome to the CryptoLogic Limited 2008 fourth quarter and year-end results conference call.
Your host for today will be Mr. Brian Hadfield. Please go ahead, Mr. Hadfield.
BRIAN HADFIELD, PRESIDENT & CEO, CRYPTOLOGIC LIMITED: Thank you. Ladies and gentlemen, welcome to CryptoLogic's 2008 fourth quarter and year-end conference call. I'm Brian Hadfield, President and CEO of CryptoLogic. With me here in Dublin on St. Patrick's Day is Steve Taylor, our Chief Financial Officer.
2008 was a year of major transition for CryptoLogic. Not only did we change management, but we also changed our business model to leverage our world class reputation as a developer and licenser of Internet casino and branded gaming software. While the numbers we announced today reflect this time of challenge and change, I'm pleased to say that we are on track to deliver the benefits of CryptoLogic's new model reducing our cost base, kick starting growth, generating cash and returning to profitability on time and on plan. As a result we are now just one quarter from drawing the line under this period of transition.
Steve will review the numbers in a few minutes but first let me share some thoughts on where we've been and where we intend to be. When I took over as CEO a year ago this Company faced major challenges. Global economic conditions were deteriorating. Our growth was stalling. The U.S. market was closed and the European market was crowded. Poker had become a commodity with little differentiation between operators except for scale and a money losing proposition for our Company. Our cost structure was unsustainable and CryptoLogic had signed only one new customer in the previous year. To put it bluntly, despite our history of innovation, the talent of our team and the strength of our software, we were standing still in an industry that was evolving fast. To put it simply, we had to change our game radically.
We had to be more aggressive in courting and acquiring new customers. CryptoLogic signed ten in 2008 alone, more than in any previous year, including big names such as 888.com, PartyGaming, BSkyB and GigaMedia. We had to release more games more often. CryptoLogic released 34 new games in 2008, including some very popular slots based on famous brands such as Streetfighter II, Marvel Sub-Mariner and King Kong. Most of all we had to review and change our strategy and business model. That's what we started doing last summer and is what we announced in October. It's about a radical change in which we now license our best games to others, creating an attractive new revenue stream at a lower cost. I called it build once, license often. According to their plans our licensees intend to deliver up to 30 branded games to the market by the end of the second quarter.
It's about doing what we do best as demonstrated again in January when we won the industry's top casino software award for the fourth year in a row based on the votes of players. CryptoLogic's casino games are popular and they are highly profitable. It's about lowering our cost structure dramatically and making poker profitable once more. That's why last fall we struck a deal to integrate our poker licensees with GTECH Corporation's International Poker Network, a transition that will happen this week right on schedule. The move gives CryptoLogic's poker licensees and their players access to a larger network with a combined average of 15,000 active players at a far lower cost to us. When you add all these steps together it's about rightsizing our business to enable a return to profitability and cash generation starting in the second quarter of this year.
So what have we done since we last spoke to you in January? First, we have substantially completed our restructuring program and we have made significant reductions in our costs. Second we have continued to sign new deals with significant long-term revenue potential. One excellent example is our new partnership with Gaming Technology Solutions, one of the top suppliers of platform use used by Internet gaming operators. This is an exciting new channel to the market, as it makes our top performing games available to a host of well-established European brands. We will make more announcements in the weeks ahead, as we have a robust pipeline of new opportunities that are close to fruition. Third, we continue to develop and release exciting and popular games in partnership with some of the world's biggest entertainment brands.
In January we released a new pack of games headlined by Spiderman Revelations, the latest title featuring Marvel's most famous hero, We remain the exclusive e-gaming software partner for Marvel's comic characters. In February we signed the other massive global player in the comic book entertainment space, DC Comics, a Warner Brothers subsidiary and the largest English language publisher of comics in the world. This will make our game lineup mightier than ever, with a few new characters you may have heard of, Superman, Batman, Wonder Woman and others. These familiar popular characters drive people to e-gaming sites and make them stay longer, stay and play longer by delivering a superior entertainment experience. And in March, as announced this morning, we signed a deal with Paramount Digital Entertainment.
Later this year we will be creating and releasing games based on some of the world's most popular movie characters. Under the agreement CryptoLogic gains the exclusive rights to offer online slot games based on more than 20 of Paramount Pictures feature film titles. These include Braveheart, Forrest Gump, Beowulf, Beverly Hills Cop, Ferris Bueller, Ghost, and many others. CryptoLogic also has the opportunity to build a dedicated gaming site that would house all of our new movie themed games. Fourth we've strengthened our position as an innovator by creating the CryptoLogic Center for Innovation, as I announced in January. It's where customers, partners, universities and others can participate in defining and guiding the future of e-gaming. This will be core to our brand and the first game from this center will be released next month, that's less than four months from conception to completion, the fastest development of a game in CryptoLogic history.
This is just the beginning of what you will see and hear from a renewed, refocused and right-sized CryptoLogic in 2009. The Company now has the right structure and the right platform to return to profitability this year and to drive growth in the long-term. I will now turn things over to Steve who will provide an overview of our financial results and update you on the progress of our restructuring program.
STEVE TAYLOR, CFO, CRYPTOLOGIC LIMITED: Thank you, Brian. Once again I'd like to remind listeners that CryptoLogic continues to report in U.S. dollars. I'll begin by reviewing our quarter four and year-end numbers and then turn to CryptoLogic's outlook for 2009. In the fourth quarter CryptoLogic earned $11.4 million in revenue, down from $14 million in the third quarter. The decrease can be attributed largely to the $1.4 million impact of the strengthening of the U.S. dollar, our reporting currency, against the currencies in which we receive income. For the full year revenue was $61.5 million, in-line with market expectations. Our Q4 revenue also reflects a period of transition in both our business model and our customer base, a transition that continued into the first quarter of 2009. We saw some weakness in wagering activity in November, followed by a recovery in December. We also began to see revenue from new licensees such as 888.com.
Operating expenses were $13.3 million down from $16.5 million in the third quarter or largely unchanged after normalizing for foreign exchange losses in both quarters. The fourth quarter loss of $26 million is due primarily to $20.6 million for several items. We wrote down the value of certain impaired investments, including $7.2 million for ParBet Poker, $6.7 million for a portion of our gaming platform that had been designed for both casino and poker, $2.2 million for Mikoishi Studios in Singapore and $3.1 million for poker related assets. Second, we had costs related to employee terminations and third, we had costs to integrate our poker room with GTECH's. These items will lead to substantial savings over the long-term. In the full...
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