CryptoLogic Business Update Call Transcript

| About: CryptoLogic Limited (CRYP)

CryptoLogic (NASDAQ:CRYP)

Business Update Call

January 15, 2009 8:30 am ET

Executives

Brian Hadfield - President and Chief Executive Officer

Stephen Taylor - Chief Financial Officer

Analysts

Brian Kinstlinger - Sidoti & Company

Todd Eilers - Roth Capital Partners LLC

[Gary Devorjak - Ambiance Capital]

[James Holland] - Daniel Stewart

Walt Lipinski - Clarion

[Narahan Chockraponte] - Private Investor

Operator

Good morning, ladies and gentlemen. Welcome to the CryptoLogic conference call. Your host for today will be Brian Hadfield. Please go ahead, Mr. Hadfield.

Brian Hadfield

Thank you, [Michael]. Welcome to CryptoLogic's conference call to provide you with an update on our business strategy and the outlook for 2009. I'm Brian Hadfield, President and CEO of CryptoLogic, and with me here in Dublin is Steve Taylor, our Chief Financial Officer.

I'm pleased to say we're making good progress with our new growth strategy and restructuring program which were initially announced in October last year after a fundamental review of the business. We're on track to reduce costs, generate cash and return to profitability from the second quarter of this year.

Steve will shortly discuss the financial details and targets we're providing today for 2009, but before that I'd like to take a few minutes to explain the rationale and some of the key actions taken over the past few months to ensure a sustained improvement in the business.

CryptoLogic's growth strategy is aimed at leveraging our successful Internet Casino business and our strength as a leading creator and licensor of compelling branded games and gaming content. We will maintain this position going forward by leveraging our soon-to-belaunched CryptoLogic Center for Innovation, where clients, partners, universities and others can participate in developing and guiding the future of egaming.

Collectively this represents a radical change in our strategy and goes hand in hand with our decision to outsource our poker network to a strategic partnership with GTECH Corporation. This enables us significantly to improve poker liquidity and eliminate the major costs of operating [break in audio] network, yet allows us to benefit from ongoing revenues from our poker clients. The strategy also enables us to benefit from the high operational leverage provided by a build once, license often business model, which will become a major platform for new revenues going forward.

The aggressive expansion of our licensing base started in 2008, resulting in 10 new licensing contracts with many leading companies such as 888, PartyGaming, Sky Bet and others. Some of these contracts have started generating revenue, with the remainder ramping up during 2009.

We've also made an [break in audio] year, and yesterday we announced an important licensing deal with Gaming Technology Solutions, a leading global platform supplier. Their customers include many top names, such as Unibet, bwin, and [Expect].

We have a strong pipeline of new business which is expected to lead to further new contract wins as the year progresses, so the growth strategy is working and will be a substantial new source of revenues.

Turning to our restructuring initiatives, we are implementing a major cost reduction program across the company. This program will be completed by the second quarter of 2009. The actions involve a significant reduction in people costs, a reconfiguration of our network, and a 75% reduction in service. We've also decreased our infrastructure costs by renegotiating supplier contracts and rationalizing the use of space where feasible.

I'll now hand over to Steve, who will show how this new strategy is translating into a significantly better financial performance.

Stephen Taylor

Thank you, Brian.

Before I get into specific numbers, I'd like to remind listeners that CryptoLogic continues to report in U.S. dollars. I would also like to remind listeners that our statements today are covered by various securities law protections regarding forward-looking statements. Please refer to our press release for the full disclaimer.

Under the plan we first outlined last October, the company is on track to reduce total operating costs by approximately $13 million on an annualized basis by the end of the second quarter of 2009. Approximately $8.5 million of the savings are attributable to a reduction in employee expenses, about $2.5 million from infrastructure and facilities downsizing, and a further $2 million in savings from operational efficiencies across the business, including the actions mentioned by Brian. The cash cost of this restructuring is estimated to be $3.5 million and in addition to that up to $20 million will be taken as a non-cash charge against assets on the balance sheet.

Going forward, I'm pleased to say that the new strategy is expected to deliver a sharp improvement at the bottom line even though we are taking a conservative view of trading conditions this year. The company expects to move into profits and generate cash from the second quarter, driven by cost cutting and our new strategy to build licensing revenues.

Recently contracted customers are expected to generate new revenues of at least $8 million in 2009. Cash generation for the full year after restructuring is estimated to be in the range of $11 to $13 million. Net profits for the year are expected in the range of $9 to $10 million, with diluted earnings per share to be between $0.65 and $0.71. These targets are based on the assumption that there is no further significant deterioration in global economic conditions and there is stability in currency rates moving forward.

The auditor results for the last quarter of 2008 and for the full year are in the process of being finalized. Although trading levels in the quarter were broadly in line with management expectations, revenues continued to be affected by a strong U.S. dollar, our reporting currency, relative to the euro, the Canadian dollar and the British pound. As a result, reported revenues for the fourth quarter are expected to be approximately 14% lower than the previous quarter. That being said, recurring operating expenses will also be lower due to the similar currency effects. Net cash at the year end amounted to approximately $42 to $43 million.

I'll now turn the call back to Brian.

Brian Hadfield

Thank you, Steve.

To summarize, we're well advanced in our restructuring program and new strategy. This is expected to bring a tangible improvement to our financial performance, with the recently contracted customers generating new revenues of at least $8 million this year despite a challenging economic environment.

Before I open the call to questions I have one further item to cover. As some of you will know, Javaid Aziz, the ex-CEO of CryptoLogic, has chosen to buy shares in the company, and with his filings has posted several documents through the Securities and Exchange Commission that are critical of the company and its current management and Board.

The discussion today is intended to focus on our plans to transform the company and bring it back to profitability and success. We do not with to be distracted from that very important message by discussing at this time any issues or concerns which the Board of CryptoLogic may have about Mr. Aziz's actions and activities prior to or post his departure from CryptoLogic or his appropriateness as a director of the company.

We may choose to raise issues and concerns in this regard at the appropriate time and in the appropriate manner, but for today we would like to focus on our plans for the company, and, as such, intend to make no further comment on Mr. Aziz.

We'd now be pleased to take your questions.

Question-and-Answer Session

Operator

Thank you, Mr. Hadfield. (Operator Instructions) Your first question comes from Brian Kinstlinger - Sidoti & Company.

Brian Kinstlinger - Sidoti & Company

The first question I had was what's the timing that you expect to move your poker to the GTECH platform?

Brian Hadfield

We'll move the poker to the GTECH platform in March of this year, Brian. It'll be completed in the first quarter.

Brian Kinstlinger - Sidoti & Company

And what does that then assume about William Hill? Tell us how that you expect to play out in terms of poker as well as casino [inaudible]?

Brian Hadfield

Well, poker obviously they're continuing on the poker network as we speak today. I would anticipate that once the transition to the GTECH network takes place, William Hill will go on to their other platform. With regard to casino, they're contracted with and plan to continue with our casino through the balance of the contract this year.

Brian Kinstlinger - Sidoti & Company

And then you provided guidance which you haven't in the past, which I think is a good thing here in this case. Give us a sense of what you're - because William Hill, there's a good chance they may or may not be here after 2009, so I think some investors might want to know, how much do you expect William Hill to contribute in 2009 to revenue?

Stephen Taylor

Brian, building the financial projections we've assumed that virtually all of the poker revenue throughout the year will go away, so these numbers we've given today assume a minimal William Hill poker contribution.

We have also in building these numbers built in a significant reduction from current levels of casino revenue on the assumption that they will transition or at least [break in audio] on more games with their new supplier as the year progress. And we've tried to build a plan which was conservative from a revenue perspective and right-sized to cost of the business to be able to deliver a return to shareholders.

Brian Kinstlinger - Sidoti & Company

And what is that number you expect A) for William Hill and casino, is that about $5 million, and then you've provided a detailed earnings number, so what revenue range does that expect in total?

Stephen Taylor

Well, Brian, you've asked me that question many times before, as to how much do each of our individual licensees contribute, and I'm going to give you the same answer that I've given you in the past. We don't disclose that information. I think we have been quite prudent in terms of taking a reduced number for William Hill.

Brian Kinstlinger - Sidoti & Company

What is the total revenue range you expect for that earnings number that you're talking about?

Stephen Taylor

On that earnings number we would expect that revenue for '09 would be roughly similar to the revenue numbers that we'll be reporting in the final for '08.

Brian Kinstlinger - Sidoti & Company

The fourth quarter annualized or all of 2008, which looks like it's about $61 million?

Stephen Taylor

I think our revenue total would be closer to what we will report on a full calendar year for '08.

Brian Kinstlinger - Sidoti & Company

Which is, based on what you said, is about $61 million, give or take?

Stephen Taylor

Yes, I think you should assume just slightly below that.

Brian Kinstlinger - Sidoti & Company

Right. Okay. And I won't ask the question again, but the only reason I say I think it's important to provide William Hill, this is a different case where they're going to go away potentially and people are going to want to be able to make models out to 2010 and figure out what's going away with them.

With that said, what does the pipeline of new casino business look like excluding what you've already signed?

Stephen Taylor

Well, you raised an interesting point and I don't think we made the point that the revenues built into this plan are only based upon those contracts that we already have signed and where we've agreed to a rollout plan with the new licensees. So we have not built into this plan any new contract signings although, having said that, we do have a very healthy pipeline of new parties interested in both hosted casinos and, in particular, taking more of the branded games of the type of the announcement we did with GTS yesterday.

Brian Kinstlinger - Sidoti & Company

And does anything seem imminent? In previous calls you guys have talked about we're pretty close or is it early negotiations and could you quantify it at all about how many maybe you're talking to?

Brian Hadfield

Well, I think that the GTS announcement yesterday is a key one and, without getting into too much speculation, I would hope that we would be able to come up in the not too distant future with perhaps one or two more.

Brian Kinstlinger - Sidoti & Company

Can you explain GTS? I mean, what kind of relationship is it? Are you giving them branded games? I'm confused on what that announcement meant.

Brian Hadfield

Well, we have a relationship with GTS where they're taking branded games which will be made available to the clients on their platform. And then it's a revenue share basis from there, which is part of the strategy of build one, license many, which is a cornerstone of what we do. And I think we've demonstrated with the contracts that we've signed last year and with GTS that we have desirable games, we have compelling games, and our goal is to continue to develop them both in a branded fashion and for casino itself.

Brian Kinstlinger - Sidoti & Company

I see. So that's similar to the 888 and PartyPoker deals?

Brian Hadfield

Correct. They just have multiple entities on their platform.

Brian Kinstlinger - Sidoti & Company

And I guess my last question is with your stock trading just above cash and you obviously expecting substantially better results in 2009 and solid profitability, I guess my question is what would be the reason not to be buying back stock here because, if the Board believes that plan, the stock's worth tons more than it is here and it doesn't make any sense not to be buying back stock, in my opinion. Maybe if you can comment on that.

Stephen Taylor

Well, Brian, I think, as we've said many times before, the question of whether we go into the marketplace and buyback stock is something that gets vigorously debated at every Board meeting. I think the other thing that we have to balance off against that is that we have had significant feedback from shareholders across the board that in today's economic climate being conservative with your usage of cash is also very important to them. So we have to balance the two of those, those two concepts, off against each other, and that's what the Board debates each quarter.

Brian Kinstlinger - Sidoti & Company

Right. And I guess my point is you have $48 some odd million of cash and you certainly don't need all of it. I mean, $5 to $6 million buys back a sixth of your stock and you certainly don't need all of it. And I guess I'm curious, as long as you guys talk about it every quarter, what is the general sense of why you wouldn't buyback stock?

Stephen Taylor

Well, we're not saying we wouldn't buyback stock. I'm not saying it's in the plan at the moment, either. I think one of the things that gets in the way of us buying back stock in the marketplace at any point in time is now that we're a Guernsey company and have to comply with London Stock Exchange rules, it severely limits to a much greater extent than it was when we were a North American company, our timing and ability to come in and buy stock in the marketplace. And so the rules here in Europe in terms of when you can buy stock are a lot more onerous than they were when we were in North America.

But the issue is on the table and it's continuously discussed with the Board.

Operator

Your next question comes from Todd Eilers - Roth Capital Partners LLC.

Todd Eilers - Roth Capital Partners LLC

I'm wondering if you could maybe provide a few more assumptions with respect to how you get to your EPS range. Can you maybe talk a little bit about what your expectations are for your interest expense, tax rate, shares outstanding?

And then also in the press release you've indicated that you expect to have a large non-cash charge. I'm wondering what impact any writedowns or charges might have on your amortization expense. What should our expectations be for that expense item going forward as well?

Stephen Taylor

Sure, I can comment on those, Todd.

We have forecast interest income to be relatively low in 2009. Currently and since the banking crisis occurred the cash balances of the company, other than those for trading purposes, have been sitting in government securities. And those yielded a very low rate of return, but we felt given the uncertainty in some of the banks that that was the prudent thing to do. So in the plan for '09 we have only about $600,000 in interest income included in that balance.

Our tax rate, as we return to operating profitability, we are earning more income than is taxed at the low rate of 5% in Malta and therefore I've taken an overall tax rate of about 12% as our effective tax rate for 2009.

Our shares outstanding, we have assumed that we're not going to be buying back stock in terms of giving those EPS numbers, so we're going with about 14 million shares outstanding.

And the other question you had was on amortization, which we have assumed - and we're continuing to work on this and it's not going to be final - I think I would prefer to hold off on the amortization question until we're finished the discussion on the write-offs with our auditors, which we will comment on at the reporting of the year end results.

Todd Eilers - Roth Capital Partners LLC

You guys have done a great job in signing up a lot of new partners and customers, especially some larger players like 888 and Party, but my comment or question is, with respect to what you're seeing with one of your remaining largest customers, which would be InterCasino. Have you guys seen any impact from the licensing of some of your top games to these larger players? Have you seen any sort of impact on your existing InterCasino business, any sort of cannibalization or increased competition with some of your other partners? Maybe can you talk in general about your thoughts about maybe how you see InterCasino going forward?

Brian Hadfield

Todd, I think InterCasino is a long and valued customer of the business. It's been with us since the beginning of CryptoLogic. We have not seen cannibalization of the games on InterCasino in the numbers. I think we saw a decline here in Europe when the economic shock first became big news. In October, November we saw a reduction in some of our licenses, Inter included, their revenues in the November period. We're pleased to report that those numbers seem to have rebounded in December and January to more historic levels.

I think the whole question about will there be cannibalization is really a question of spending of advertising dollars, who's got the most money to spend in advertising dollars. That really has more to do or at least as much to do with customers coming in to play the games as having the product offering.

And some of these licensees, the new guys that we've taken onboard in the branded gaming, 888.com, we have games up and running with them and they're making a very positive contribution. It's very encouraging. We think that it's just a question of the other branded games licensees, them having the technical capability to roll out the other games. And we've talked about rollout schedules with them and think that that will be progressing throughout the first question, into the second quarter of this coming year.

Operator

Your next question comes from [Gary Devorjak - Ambiance Capital].

Gary Devorjak - Ambiance Capital

A couple of different subjects, one gets more in the realm of foreign exchange. When you talked about this quarter's revenue being down 14% and talked about the translation effects, is that the only reason? What would the revenue performance have looked like on a constant currency basis, just so we can get a sense of how much you're being impacted by that?

And then maybe you can also kind of outline, you have a fairly complex situation, you know, most of the revenues in pounds, a lot of your expenses are in Canadian dollars. Maybe you can kind of outline again for us the various exposures so we can get a sense of, at least at a broad level, some of the moving parts and how you're affected when the dollar moves against the various currencies.

Stephen Taylor

Certainly, Gary. I think, you know, some of the answers to your questions for investors can be most readily addressed by them looking at Note 14 to our last quarterly financial statement release, where we talk about revenue streams by currency, expense streams by currency, to give you a sense of the relevant proportions.

In terms of costs, we have more costs, significantly more costs, very, very minimal revenue, in Canadian dollars. And during the quarter of September 30th to December 31st, there was an 18% strengthening of the U.S. dollar against the Canadian dollar, so that is a good thing for CryptoLogic because it doesn't impact the revenue. It will make our expenses in Canada 18% lower as we move forward if the rates stay similar.

The other one where there has been an impact is in pounds sterling, where about 70% of our revenue comes in in pounds sterling and during the quarter there was a 26% strengthening of the U.S. dollar against pounds sterling. And so, you know, we have overall a reduction of 14% because so much of our revenue is in pounds sterling. What that really indicates is that from a straight trading perspective, results were pretty well consistent from Q3 to Q4 even though there was a downturn in the economy.

So I don't know how much more I can add to that. It's kind of a mathematical exercise that I would refer investors back to the notes to the statements to work through.

Gary Devorjak - Ambiance Capital

The $43 million in cash you have now, is that all in U.S. dollars? And given the kind of exchange debacle last quarter, generally speaking what's your policy on converting currency? How often do you do it, when do you do it, what currencies do you move in and out of? So kind of forgetting the accounting and [inaudible], how do you actually manage the cash flow in and out in all these currencies and periods and what your policies are?

Stephen Taylor

The general policy, Gary, is that we would sweep virtually all of the - anything that's not absolutely required for operating cash balances is swept into U.S. dollars so it's not subject to foreign exchange risk. That was not the policy in August, which is the reason why we had the foreign exchange issue. That had been the policy in prior years at CryptoLogic, and we've reverted back to the policy at the company to ensure that our balance sheet is substantially all made up of cash. That cash is in U.S. dollars and denominated in U.S. dollars. And as I said, it has been parked for the last two or three months in government securities.

Gary Devorjak - Ambiance Capital

On the restructuring program, the $3.5 million of cash costs, can you elaborate what those are? Is it mostly severance payments or what else might be going into that?

And then also maybe you can give us some detail on how far along we are because most of the initiatives, I think you really had identified those a few months ago, so I would expect that most of these are pretty close to being achieved. So maybe give us a sense of the timelines and what's left to do on the various initiatives to where we can kind of - I know you're targeting Q2 for profitability, but how far along is network reconfiguration? How far along are the various layoffs, things like that? So maybe you can give us a better view.

Brian Hadfield

Yes. Out of the total cash costs I would anticipate that at least $2.5 million out of the $3.5 million is going to be people-related costs for redundancies and payouts. The balance is in costs related to real estate issues and cancellation of various and sundry contracts with suppliers that we've sought a different solution to get a lower-cost alternative going forward.

Where we are in terms of the progress, we had some terminations of staff in November. We anticipate overall that out of our headcount, by the time this plan is worked through we will be reducing the headcount by approximately 30% and about 12.5% of the headcount has been reduced already to this date.

And the rest of it is dependent upon the timing of William Hill's participation in our poker room is a big factor as to when various people will be exiting the business.

Gary Devorjak - Ambiance Capital

So it sounds like obviously that's the main timeline. The other restructuring elements are smaller dollar value and going to happen more quickly, I guess.

Brian Hadfield

Yes. Now you asked a question about the network. Those plans in terms of the reconfiguration of the network are relatively well advanced. I mean, we have the plan in place. The 75% rationalization of the servers, that process is under way, so that will be saving us on ISP costs, on bandwidth costs, on racking charges. You know, currently we have about 400 servers in the business, so taking it down from 400 to 100, each one of those servers has a fairly high annual operating cost.

Operator

(Operator Instructions) Your next question comes from Brian Kinstlinger - Sidoti & Company.

Brian Kinstlinger - Sidoti & Company

You mentioned your goals for the rather new customers who are signed up for next year. Can you give us a sense of where that is right now? For example, in the fourth quarter do you expect you'll generate $1 million from the newer customers or are you not there yet?

Stephen Taylor

In the fourth quarter it won't quite be that much, Brian, but the rollout schedule is certainly  the guys at 888 are continuing to rollout our games and we will update the marketplace as and when that happens. The guys at PartyGaming are working along according to their technical schedule to get their rollout done.

Brian Kinstlinger - Sidoti & Company

And Sky Bet, is that expected to occur when? When were you expected to launch that?

Brian Hadfield

Sky is due to launch their first batch of games from the August platform in March.

Brian Kinstlinger - Sidoti & Company

When I go through the revenue numbers, I back obviously in all of the other things you provided such as interest income, taxes, and shares, and I get to an expense level of about $45 million. Does that sound about right for the year for both software development and G&A?

Stephen Taylor

Brian, I think you should be planning on a number of about $42 million.

Brian Kinstlinger - Sidoti & Company

So does that mean in December you exited the year closer to the $11.5 million range with currency and when you take away some of the things that happened in the third quarter that were one time, is that where you're exiting?

Stephen Taylor

I think that's what I'm saying, Brian. And consistent with the revenue dropping off because of currency, an 18% drop in the Canadian dollar given the amount of people and the facilities we have in Toronto, that gives us a significant reduction in costs.

Brian Kinstlinger - Sidoti & Company

So all in all not only are you dropping [$13] million of costs, but currency, from where it is today, will drop costs a lot more next year as well compared to '08, right?

Stephen Taylor

There will be the impact from both those things, real cost savings and a currency cost saving as well.

Operator

Your next question comes from [James Holland] - Daniel Stewart.

James Holland - Daniel Stewart

Just a couple of more sort of general questions, if you will. The first one is really your Center for Innovation, first, your potential investment in that and really I guess the purpose of it, how will it work in terms of improving the business.

And the second question, again, rather general but it would be good to get your views, really on the NextGen deal, the interesting deal you've done there, is that really your first push into getting your games into land-based operators? Are you using them as a distributor? Perhaps just giving me some more detail would be great.

Brian Hadfield

Well, the Center for Innovation is - during last year I spent some time talking to clients, to partners, and various groups in and around the industry and I did a fair amount of work in the past on innovation, and we were looking to capitalize on the fact that what we've been able to do and that the cornerstone of our business is to develop both general casino games and branded games that are desirable for both players and licensees.

The question was how do we capitalize on that? When you take a look at what's happening in general with social networking, when you take a look at what's happening with things like how the xBox and the Wii have developed, the question is what's the future of e-gaming like from our perspective?

And so we've got a group of people that are interested in working with us, taking a look at both ideas and technologies and working together to quickly come up with an idea, test an idea, develop the idea, and, you know, if it makes sense, to introduce it into the marketplace. Because, as you know from an innovation perspective, the key to successful innovation tends to be disruptive innovation, which is taking an idea, getting it very quickly to market, and creating market space and ultimately market growth and dominance.

So we've developed a process for that. We've got a variety of people that are working with us to do it. Because of technology today, it's a virtual enterprise. We'll have the demo facility capability, whilst it can be anywhere we want, we'll start off with that here in Ireland. And it really is to start to push the boundaries. We've got two or three game ideas already in process that we want to push out and we want to get those out into the marketplace.

So it really is a fundamental build of what our core strength is. It's allowing other people to participate. It's getting people in a community, a gaming community. It's getting people involved from different parts of the world. And it's creating a vibrant, rich environment in which games can be developed.

So that's primarily the motive for that, and it is actually a self-funding exercise.

James Holland - Daniel Stewart

So you're using sort of existing resource, but putting it towards working with partners to, I guess, take e-gaming into what I think a lot of people think will be more sort of a crossover between entertainment and gaming, which I guess will keep the [pungers] happy and keep licensees happy?

Brian Hadfield

Correct. And we've got some very, very talented people that have come up with some amazing, amazing concepts in games. But we're hopefully smart enough to realize that there are lots of people out there that have got ideas and a lot of tangential industries and businesses that can help, and clearly you've got clients that have got ideas as to where they want to take it. And at the moment, as I say, we're already modeling a couple of pretty interesting concepts.

Operator

Your next question comes from Walt Lipinski - Clarion.

Walt Lipinski - Clarion

When I look at the estimate of incremental revenue of $8 million from the new customers, how much potential upside is there in those numbers? Because, again, I look at companies like PartyGaming, 888 and GigaMedia and say, if we're branding them our very best games and all we expect to achieve is $8 million in total between all them for an entire year, that doesn't seem to even replace William Hill revenue. So I guess what kind of upside is there?

Stephen Taylor

Well, Walt, I think we prefaced the discussion by saying that we wanted to take a conservative view of what revenues were going to be for the coming year. So both Brian and I are of a mind that there is upside in the numbers. Those are the preeminent - when you add to PartyGaming and 888, you start to add some of the other - Unibet, bwin, some of the guys that are on the platforms with people like GTS and with Orbis, there are some of the biggest names in gaming that will be taking our games.

The real wild card in terms of building in a number is because we're not necessarily doing the technical implementation of those games, it's the timing of the rollout. And we have very much more weighted the revenue to come in towards the latter half of the year because of the technical requirements to getting these games up and running on other people's systems.

And so yes, we think that there is upside in those numbers, but we wanted to build a business with a cost structure that would make a good return for shareholders and not be dependent on us chasing revenue that we're not certain when it's going to come in.

Walt Lipinski - Clarion

I think this probably a repeat from the past couple of calls. How is Asia going? I remember about a year ago it was expected to exceed 10% of revenue at this point and I think that's been delayed, so I guess what's the update?

Brian Hadfield

The update on Asia is that, as you know, the investments made in 2007 were predicated on incremental investment over time to realize all the benefits. In the latter half of last year we cut back on the capital spend investments in those organizations. And whilst we continue to support them, we've cut back on our revenue expectations. But we're still supporting the customers that we have there; we've just cut back on the expectation at this point in time.

Walt Lipinski - Clarion

Well, I know we had one announcement where I guess there was a pretty big rollout that was supposed to go to half the Internet cafes for Mahjong. Is that starting to generate revenue yet or not?

Brian Hadfield

Well, the issue for us there, Walt, is we own less than 20% of that business. So from a revenue recognition perspective for CryptoLogic, because of the accounting rules, until you get up over 20%, you can't even equity account for that.

So the answer to your question is the investment is doing well in that the business, the Mahjong business is continuing with that rollout into the Internet cafes in China, but the actual amount of revenue that would flow through to CryptoLogic is not, you know, we're not going to be showing equity income from that business until such time as we are comfortable that we can be investing more cash and the cash reserves will be solid by the time we resume that process of investing in those Asian entities.

Walt Lipinski - Clarion

And I jumped on the call late so, if you addressed it, just let me know, but have you guys commented at all about Javaid's latest letter to the Board and what the response is anticipated to be?

Brian Hadfield

We actually said that this call was about our strategy in the future and that we were going to concentrate on that and not comment on Mr. Aziz or anything related to him.

Operator

Your next question comes from [Narahan Chockraponte] - Private Investor.

Narahan Chockraponte - Private Investor

I joined the conference call a bit late so I don’t know if this has already been addressed, but in the last conference call when you were asked about CryptoLogic's revenue share due to the new poker agreement you signed with GTECH and Boss, you mentioned that they'll get a portion of the revenue and that CryptoLogic will retain clearly the lion's share. Does this still hold true?

Brian Hadfield

Yes. The arrangements that we have with GTECH are sort of normal commercial rates of utilizing their technology as people would pay in this industry to a technology provider.

So, once again, I think the relevant point here is that we have built our business plan around the revenues that we - first of all, the revenues on run rates that we're experiencing in the current quarters, so that we're not anticipating an uptick in revenue from poker even though the licensees that we have that are going across will be in a much bigger poker room - which, I think, the whole industry understands and acknowledges that the bigger the poker room, the more attractive it is for licensees to bring players in.

So we've built our financial model on what we think we're going to get out of poker in 2009. And, once again, we think that that's been done on a conservative basis.

Narahan Chockraponte - Private Investor

Is it possible for you to give a percentage of how much share you get and how much they get as far as your poker revenue goes?

Stephen Taylor

I don't think we're going to be disclosing the contractual terms as they're subject to confidentiality agreements.

Operator

(Operator Instructions) Your next question comes from Brian Kinstlinger - Sidoti & Company.

Brian Kinstlinger - Sidoti & Company

I wanted to go over the revenue that you sort of are talking about, slightly lower than 2008, because it seems that even though I annualized the fourth quarter, because that suggests today's currency and that's your seasonally strong quarter, we'd be up $48 million. And then if you add $8 million for the new customers, that's $56 million. But you're going to lose William Hill, which produced a lot. So when you say you're offering conservative views of next year, it more or less sounds like you're expecting the existing business to grow 20% or 25%, I would think. Tell me maybe why my math doesn't make sense.

Stephen Taylor

Well, Brian, first of all you said you've analyzed the last quarter. I've said we think that we are going to realize what we realized from revenue in 2008. That's a full year what we thought we were going to realize from revenue in 2008.

Brian Kinstlinger - Sidoti & Company

Right. Well, that's - I mean, you've given the number by saying that there's a 14% sequential decline from September. And so when you add those together, that's $61 million.

Stephen Taylor

Yes, well, I think a number in the vicinity of $60 million is a very good number for you to be using, Brian.

Brian Kinstlinger - Sidoti & Company

I understand. I'm just trying to - the organic business of the customers that aren't leaving, that are staying with CryptoLogic, is there an assumed 20% plus organic rate? Because what I'm saying is even if William Hill and the new casinos you've brought on offset each other, you've got a long ways to go, it seems like, to get there based on where you're ending the year at.

Stephen Taylor

I don't think the gap is as big as you're insinuating. I'd be, I think, happier to talk with you offline about, you know, if you want to get into more of the nuts and bolts.

Brian Kinstlinger - Sidoti & Company

Okay, but I'm just saying the $12 million roughly that you're going to report in December, give or take, is not as reflective of the business, I mean, because you had $18 million in the quarter, for example, so I guess I'm wondering why the fourth quarter isn't more representative of the business and the entire year as we've had currency and some attrition of the business.

Stephen Taylor

Yes. Well, I think we also said that there was a dip in the month of November, Brian, that we've seen - that dip has not replicated itself, that in fact the rates of revenue have come back to where they were before.

Brian Hadfield

I think if you take a look at the licensees that are coming onboard, if you take a look at the number of games that 888 has still got to bring out, if you take a look at the number of games Party have got and will bring out, if you take a look at Sky, who've got 22 games of which the first batch come out in March, if you take a look at the fact that Everest is in its final testing at the moment and some of the other commitments that we have, and you take a small portion of the games that they've contracted for - not anywhere near the total number - and you start to do the mathematics, then I think you'll probably find you're a lot closer than you think.

Brian Kinstlinger - Sidoti & Company

And that would be fine, but I thought all those were included in the $8 million from newly signed customers, so I'm only using that figure. So maybe that $8 million is going to be a lot more.

Brian Hadfield

Well, I think that is a point, Brian, that he said at least $8 million. What we've said is at least.

And again, just one last thing, it's not contingent upon new contracts.

Operator

(Operator Instructions) There are no further questions registered at this time. I would now like to turn the conference back over to Mr. Hatfield.

Brian Hadfield

Thank you, Michael. Thank you again for joining us today. I very much look forward to keeping you posted on CryptoLogic's progress and to delivering the results our shareholders expect and deserve. Thank you.

Operator

Thank you. Ladies and gentlemen, your conference has now ended. All participants are asked to hang up their lines at this time, and thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!