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05-11-2005, 07:48 AM
The Cryptologic results for Q1 var better than expected.

Press Release Source: CryptoLogic Inc.

CryptoLogic delivers record revenue & strong earnings growth in Q1 2005
Wednesday May 11, 6:01 am ET

First quarter revenue up 33%, earnings up 27% Disciplined execution, strategic investments drive "blue-chip" performance in both poker and casino
TORONTO, May 11 /CNW/ - 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."

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

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.


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.