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CryptoLogic Limited (NASDAQ:CRYP)

Q2 2009 Earnings Call

August 13, 2009 9:30 am ET

Executives

Brian Hadfield – President and Chief Executive Officer

Stephen Taylor – Chief Financial Officer

Analysts

Brian Kinstlinger – Sidoti

Todd Eilers – Roth Capital

Alex Silverman – Special Situations

Gary Dvorchak – Aviance Capital

Rah Allingham – Hartman Company

Jane Anscombe – Edison Investment

Operator

Welcome to the 2009 first quarter results conference call. Your host for today will be Mr. Brian Hadfield.

Brian Hadfield

Ladies and gentlemen, welcome to CryptoLogic's 2009 second quarter conference call. I am Brian Hadfield, President and CEO of CryptoLogic. [inaudible] profitability, cash generation, and long-term growth. This entails focusing on our core business to build and host internet casinos, licensing CryptoLogic’s exceptional branded games to the world’s major internet gaming operators, and reducing our cost base dramatically, in part by moving to a shared poker network.

Today, I can say that we’ve done what we said we would do and that has gotten us on a clear path to profitability. We grew revenue from our hosted internet casino business 21% from Q1 to Q2 and launched a casino for a new customer. We grew revenue from our branded games 70% during the same period. We’ve taken $12 million out of our annualized cost based second quarter operating expenses down 25% from where they were a year ago. We’ve grown our customer base to 24—the most in our history—including virtually all of the most important internet gaming sites. We continue to develop great new games and extended our groundbreaking relationship with Marvel Comics. We migrated our poker network right on time, and we became profitable in June as anticipated.

Let me give you a snapshot of what we’ve been doing on the three core elements of our strategy. First in CryptoLogic’s core casino business, we’re very pleased to report significant sequential growth. There are three steps to success—expanding our customer base, building and launching the casinos, and providing marketing support to our licensees. We’ve made progress in all three areas.

We launched another hosted internet casino in the quarter—this time for the Gaming Network, the owner of some of the UK’s most popular gaming sites such as lottery.co.uk. We released several new games to our casino licensees. The highlight was Jenga—a slot game based on one of the world’s most popular board games and developed in a record time of just 4 months. It’s receiving rave reviews from players, quickly earnings a spot among their favorite CryptoLogic games and in turn contributing to our revenue.

Other games that made a solid contribution in the quarter included Millionaire’s Club 3, Hulk Ultimate Revenge, Spiderman Revelations, Cubis, and King Kong. Millionaire’s Club made the headlines this week as a player won on one of our new licensee sites, BskyB Skyvegas.com, a huge jackpot of $1.5 million pounds sterling. That’s the sort of news that attracts more and more players to our licensee sites.

The final step in casino is marketing the games to players at a time of intense competition for a share of the player’s wallet. That’s why we’re assisting our licensees with player acquisition, search engine optimization, and better management of portals.

Turning to poker, there is a general malaise in the market, validating our decision to move to a shared poker network with GTECH Corporation. This move happened right on time. It has cut across dramatically while improving the player experience by adding critical liquidity to the network.

As Steve will tell you, our poker revenue went down more than anticipated, but the difference is that we will be operating this business at a profit from the third quarter onwards.

Finally, we saw perhaps the most exciting progress of all in our branded game business. Two of the biggest names in e-gaming, Sportingbet.com and Betfair, joined our customer roster in the second quarter alongside other giants such as 888.com and Party Gaming. This means that all of the big four international e-gaming operators will be delivering Cryptologic games to their players this year. 888 showed further confidence in our relationship by signing a deal for five new games to launch in 2009.

Cryptologic is also attracting some major gaming brands with powerful appeal in their own markets. These include Ireland Party Power, the UK’s Victor Chandler group, Centrebet, and Totesport, Britain’s state-owned and fourth largest bookmaker. Now that we have these customers, the key is enabling them to execute by getting our games onto their sites. We’ve been working with two key channels for the world’s largest gaming sites—the GTS and Orbis platforms. Orbis now has 13 Cryptologic games available on its platform, with two more to follow this year. GTS has converted six games with four more to follow this year also.

While the implementation of our games by our customers has been slower than first planned, we are seeing steady progress. Cryptologic licensees have 13 games up and running by the end of the second quarter, up from 3 in Q1. Based on our customers’ plans, we expect to see more than 40 Cryptologic games on customer sites by the end of the third quarter, growing to more than 110 by the end of the year.

As a result, we are confident that revenue from our new customers will exceed our target of $8 million for 2009. And so with a customer base that is second to none and effective execution in helping our customers launch and market our games, we believe Cryptologic continues to gain momentum.

I would now turn the call over to Steve Taylor, who will provide some analysis about our financial results.

Stephen Taylor

I’d like to remind listeners that CryptoLogic continues to report in U.S. dollars. CryptoLogic revenue held steady at $10.1 million in the second quarter, unchanged from the first quarter of 2009. Behind that number, there are two developments worth noting. First, the 21% increase in casino revenue from $6.4 million in the first quarter to $7.7 million in Q2, and second the 70% increase in revenue from branded games, from $300,000 in Q1 to $500,000 to Q2. This growth in revenue from internet casino and branded game businesses completely offset the significant impact from the previously announced loss of William Hill as a poker customer.

As Brian mentioned, we integrated our poker network with that GTECH Corporation in March, a move that will transform poker in a profitable line of business for Cryptologic. This caused a significant short term drop in poker revenue for several reasons. First, William Hill was responsible for a large amount of poker revenue. Second, revenue from the licensees that moved to the shared network declined during the quarter, consistent with industry trends, and third, there is always an expected attrition that accompanies any such transition.

Over the long term, we expect poker revenue to rise gradually and contribute to profitability, but it will not be a major growth driver for the company. Consistent with the major strategic shift we’ve made last fall, Cryptologic’s revenue from branded games now exceeds our revenue from poker. We expect this trend to continue as our customers plan to roll out more than 110 games on their sites this year.

Operating expenses were $9.9 million in the quarter, up from $8.2 million in the first quarter, but down 25% compared with the same period a year ago. Much of the increase from the first quarter was due to adverse currency movements, which accounted for $625,000 in higher costs. We incurred $605,000 in language translation costs related to the development of websites for new customers. This is not expected to recur. Other factors included higher development costs and new resources for portals and search engine optimization. We also had higher costs for the services we provide to our licensees to support marketing, i.e., player acquisition and retention. While we reduced the overall size of our workforce, we upgraded the skills of our employees in these particular areas to help drive revenue.

General and administrative expenses were down 30%, or $900,000 from the previous quarter. On a year over year basis, G&A costs are down 45% or $1.8 million. We expect this to continue as we look for ways to contain and/or reduce costs.

As Brian mentioned, we’ve already taken $12 million in annualized costs out of the business and continue to look at all internal processes to find savings. These include the outsourcing of our network operation center in Q3 and the continued reduction of servers. We’re targeting a reduction of $15 million in annualized costs.

We ended the quarter with an operating loss of $2.2 million or $0.17 per fully diluted share. Within the quarter, however, we saw a significant positive shift between April and June as revenue rose from our casino and branded game businesses. The company has also reviewed the carrying value of its long-term Asian investments and determined that a provision of $4 million is required for certain of these investments. As a result, the company recorded a net loss of $6.2 million or $0.46 per share for the quarter.

Cryptologic closed the quarter with $33.8 million in net cash, or $2.45 per diluted share. This compares to $38.7 million or $2.80 per diluted share at the end of the first quarter. The decrease in net cash was due largely attributable to the operating loss and advance royalty payments. We will continue to conserve our cash by limiting our capital spending. The company continues to be debt free. Finally, the Board declared a dividend of $0.03 per share, which is unchanged from last quarter.

Let me close with our outlook for the remainder of the year. In light of current market conditions, consumer sentiment, and the slower than anticipated rollout of branded games by our customers, we’re lowering our full-year targets and anticipate results more in line with analysts’ expectations. While we’re not able to give you precise guidance at this time, here’s what we can say. Management targets a return to profitability and cash generation in the third quarter with more than 40 games expected to be operating on customer sites by September 30th. We continue to expect a net profit before the non-cash impairment provision announced today for the full year, and we expect to return to positive cash flow for the second half of 2009.

I’ll now turn the call back to Brian.

Brian Hadfield

At the core of today’s announcement is a simple message. We’ve done what we said we would do, and we’re beginning to reap the results with significant sequential growth in our two core businesses. We’re delighted to have not just the best games and also the best names in gaming as our customers and partners. We’re focusing on supporting our licensees and the planned ramp-up of our games on their networks, both directly and through GTS and Orbis. We will continue to monitor our cost base very closely, and have scope to find further savings as we achieve even greater efficiency in our operations.

With a considerably larger customer base, an aggressive rollout schedule for our new games, we’re confident that Cryptologic has the people, the products, and the partners to deliver profitability in 2009 and sustained performance for our shareholders in the years to come.

We would now be pleased to take your questions.

Question-and-Answer Session

Operator

(Operator instructions). The first question is from Brian Kinstlinger from Sidoti.

Brian Kinstlinger – Sidoti

On the operating expense, Steve, it sounds like you expect that $600,000 from development costs for the language to go away, but if my guess is correct, that extra $600,000 or so will still be there based on where the rates are, and maybe just give us a sense at least from where you can control where your costs are going to be? Are they going to be closer to where we were in the first quarter or where we were in the second quarter?

Stephen Taylor

Brian, we’re not going to be where we were in the second quarter. We’re not going to be completely all the way back to where we were in the first quarter. I think for the third quarter we’re anticipating we should be somewhere about right in the middle of those two, and that’s on the operating costs, and on the G&A, I’ve said all along that I think it will be a runrate of about $2.2 million. That’s where I think we’ll be for the third quarter as well.

Brian Kinstlinger – Sidoti

I can see now that profitability has obviously changed because you need a little bit more revenue with the increased expenses, so I think it would be helpful, and I don’t think anyone has ever asked this question but I don’t see why in a public call you couldn’t give it, the revenue trends as they were in June versus July and maybe in August how we’ve done since we’re a good chunk through August, so we can see the progress that’s been made.

Stephen Taylor

Our revenues in the month of July continued to run at roughly June rates, and we’re continuing to run sort of at that rate for August as well.

Brian Kinstlinger – Sidoti

So what was June revenue then since it was the strongest of the months so we can get a sense? Was it $4 million of the revenues, was it $3 million, $3.5 million?

Stephen Taylor

I don’t think I’m going to go back to reporting on a month by month basis, Brian. What I will tell you though is that the revenue will be sufficient, we believe, on current trends to exceed what it was in the second quarter and will be sufficient for us to return to profitability overall for the quarter in the third quarter.

Brian Kinstlinger – Sidoti

You had 13 of these branded games at other games and you expect to be at 40. Where are you today so we can see how that’s progressed throughout the quarter?

Brian Hadfield

I believe, Brian, as of today it’s 16. There are more due to come out later in August and a bunch more in September.

Brian Kinstlinger – Sidoti

When you talk about branded games being up 70%, that’s what we’re talking about—the games on other people’s sites that you’ve sold by the game?

Brian Hadfield

That we’ve licensed by the game, correct.

Brian Kinstlinger – Sidoti

If I take that math, 500,000 divided by 13, I get 38,000 apiece. Is that what we’re thinking about per game per quarter going forward or is that going to depend on other factors?

Stephen Taylor

I think instinctively that number would be a bit too high per game because you’re going to have new licensees coming on board with casinos of varying size in the market place, so I don’t think just doing that simple math is going to get you the right answer.

Brian Kinstlinger – Sidoti

Can you give us a sense for what might that be? Are we thinking $20,000, are we thinking half of the $38,000, or can you give us a ballpark sort of range of what a really big guy like Party Poker or 888 can do, and then what a small guy might be contributing?

Stephen Taylor

I’m not prepared to at this early stage where we’ve only got a few customers up and running speculate on what some of the newer guys will make. We have a sense, but I’m not willing to speculate publicly as to what those rates might be. I think those numbers that you threw out in terms of an overall average are probably not that far off the mark.

Brian Kinstlinger – Sidoti

Skybet has agreed, it looks like, to feature your games on the front of their page. How many other of your customers that you’ve signed on are going to do something similar do you think based on the discussions you’ve had?

Brian Hadfield

We’ve discussions ongoing with each one of these licensees. As you know, these games have been highly successful in the hosted casino environment that we have. We have some experience and expertise through our Ads.com subsidiary on how to maximize the games for revenue potential, and so we’re working alongside virtually all the guys that we have signed up to work with them to get these games positioned such that they maximize. The benefit is bigger for them if they do well on our games than it is for us. We’re working with them to make that happens.

Brian Kinstlinger – Sidoti

Has anyone else agreed yet to put these games at the front as a feature page, or is that just a discussion you’re trying to have with everyone else right now?

Stephen Taylor

To be fair, Brian, Party has had them on the front page; 888 has. Sometimes they rotate them through. In almost every case, we talk about the positioning, not only on the landing page but we talk about email campaigns, there are CD campaigns. There is a variety of things that licensees do, so while we clearly have a sense of positioning and we encourage positioning and in most cases people support our positioning on the landing page that is, there are other things that they do for us as well.

Brian Kinstlinger – Sidoti

On Orbis and GTS, I’m curious how many penetrated you are and what I mean by that is how many are left that are unsigned under those two platforms versus what you’ve signed?

Brian Hadfield

I don’t have that figure right in front of me, but I would imagine there’s at least a double digit number.

Brian Kinstlinger – Sidoti

And would you think that you gotten most of their meaningful ones and the rest are smaller or is that not fair to say yet?

Brian Hadfield

Well, I’d only be prepared to say that we have announced a number which we think is a good number. We clearly have ongoing dialogue, and we will announce further licenses as they come up, and I’m reasonably confident we’ll be doing that.

Operator

The next question comes from the line of Todd Eilers with Roth Capital Partners.

Todd Eilers – Roth Capital Partners

You guys mentioned on this call you had thirteen games live in the second quarter under the new licensing strategy or model. That was a bit lower than what you got it for last quarter, which I believe was expected to be 19 games live. Can you maybe tell us which ones got pushed out and why in the quarter?

Brian Hadfield

The games basically were pushed out based on some priorities at the client site, and I wouldn’t really be prepared to talk about the client’s responsibility or what went on. Suffice to say, the games have not gone away, they have moved out, and they are back in the queue for this quarter.

Todd Eilers – Roth Capital Partners

I know you’ve got games on 888 and Party. What are the other two partners that you have or I guess can you just tell us which of the new licensing agreements you’ve signed, which of those partners actually have games live right now and how many per partner?

Brian Hadfield

Sky has, Party Power has, Party has, 888 has, and those are the ones at the moment. Party has six, 888 has three, Sky has two, Party Power has two or had at the end of the quarter. Sky has added to that since.

Todd Eilers – Roth Capital Partners

You guys also mentioned in the quarter on the poker side loss of William Hill revenue there of about $1 million. I wondering though on the casino side, and I’m not looking for an exact number, but could you give us maybe a range of what William Hill contributes on the casino side for you guys on a quarterly basis?

Stephen Taylor

Todd, no I’m not going to give you that number. Unfortunately we have not in the past disclosed what each licensee’s rates or contributions were in a quarter, and I think we’re going to stick to that.

Todd Eilers – Roth Capital Partners

How about going forward, is there an opportunity for you guys to keep William Hill as a partner in some fashion in 2010 after the existing agreement expires, and if so what might an arrangement look like?

Brian Hadfield

Certainly from our perspective, we would be more than happy if that were to happen, and clearly the major offerings we have are casino and branded games.

Todd Eilers – Roth Capital Partners

So if there was an opportunity, would it be similar to what you’re doing with 888 and Party and licensing individual games or do you think that there might a larger opportunity than that?

Brian Hadfield

I couldn’t speculate on that. I can say that those are the two options that are available, and certainly they are interesting options I would have thought for both parties.

Todd Eilers – Roth Capital Partners

If you can’t give actual numbers for William Hill’s contribution in the quarter, can you maybe give us a sense of how that revenue is trending? Is it trending down through the first half of ’09 or is it holding steady?

Steve Taylor

Surprisingly Todd, it has come down a little bit, but not significantly, and it continues to hold up and be strong right now. I think as an adjunct to the question that we were just asking Brian, William Hill has always had good success with our casino, and they continue to have good success, and I think using our product has been a highly profitable enterprise for them, and they’re solid business men, and I suspect they’ll take that into account as they move forward.

Brian Hadfield

As you know, Todd, we’ve always had a very strong relationship with them, and we continue to have a very strong relationship, and I talk to them on a regular basis.

Todd Eilers – Roth Capital Partners

Are you guys in active negotiations regarding any sort of new relationship heading into 2010 at this point?

Brian Hadfield

We’re just continuing to talk based on the fact that we have a relationship with them.

Todd Eilers – Roth Capital Partners

On the other revenue line item, it was strong again this quarter. Obviously, you mentioned an increase in marketing and support services there, and I know the portal business is in there. Steve, can you give us a sense of what your expectations are for that business going forward? Should we expect similar run rates through the first couple of quarters of this year?

Steve Taylor

I don’t see us being quite as strong in the last quarter of year, but I think you can probably expect it to be similar in quarter three.

Operator

The next question comes from the line of Alex Silverman with Special Situations.

Alex Silverman – Special Situations

Your guidance for the branded games is exceeding $8 million for the year. You guys generated about $800,000 for the first half. Obviously, the run rate accelerates dramatically as the year goes on as these games ramp. Can you give us some sense of what kind of run rate you expect to exit the year with?

Brian Hadfield

Is this a quarterly run rate, Alex?

Alex Silverman – Special Situations

What’s the annual run rate you expect in, for example, for the month of December.

Brian Hadfield

We have articulated that this is going to be in the vicinity of about $8 million for the year. I don’t think we’re going to give a specific number at this point in time, but as you quite rightly pointed out, a lot of this is pretty heavily backend loaded, so we will exit the year with a revenue run rate that is significantly in excess of what we are doing at the moment.

Alex Silverman – Special Situations

If the first half of the year was $800,000 and the third quarter from just sort of back of the envelope, I’m getting to like $1.5 million to $2 million, that would suggest that the fourth quarter is something like $5 or $6 million suggesting that next year is something like $20 million if you signed no new deals.

Brian Hadfield

I think with what we have in the contracted and planned at the moment, I wouldn’t disagree with your number.

Operator

The next question comes from the line of Gary Dvorchak with Aviance Capital.

Gary Dvorchak – Aviance Capital

I want to circle back and get some clarification on your comments on the operating expenses because you’re saying for Q3, they should kind of come in between Q1 and Q2 which would imply $13.2 million or so, and if you’re flat on the G&A and finance and amortization, that would imply that your operating costs are really going to stay about the same as they were in Q2. You’re saying that you had $600,000 loss in foreign exchange. You called out the $600,000 of translation cost. You’re implying those are one time. What costs are replacing that? Is this a fair assessment?

Steve Taylor

Gary, let’s talk about just the translation cost in total. We had some licensees where we had to go and put some new product up in different languages. If you look at what we paid for those translation costs, $605,000 in the second quarter, and then you go back for the whole year of 2008, we only add $200,000 in similar cost like that overall for the whole year, so it very much was something special that came along that we had to deal with and react, and in the plan, from what we know, we got to get up and running for customers in the balance of the year, we don’t have significant amounts of those similar costs.

Gary Dvorchak – Aviance Capital

I guess what I’m asking is something else. You are kind of implying operating cost is still going to be $9.8 million or so for Q3?

Steve Taylor

If you look at our P&L, what I’m saying is in our line we call software development and support cost, those expenses were $8.1 million in the first quarter and $9.6 million in the second quarter, and what I’m saying is I think we’ll come in for that line approximately right in the middle of those two numbers in the third quarter.

Gary Dvorchak – Aviance Capital

I got it; that’s where was the confusion was. I thought you were referring to the total operating expenses, the $13.1 million.

Steve Taylor

No. Amortizations are going to stay roughly similar, and as I said the G&A costs are going to be running at a rate of about $2.2 million a quarter.

Gary Dvorchak – Aviance Capital

On the prepaid royalties, is that a single customer? Is that a normal level that you have going forward?

Steve Taylor

No. For the most part, those are amounts that we paid for things upfront. We just entered into a new longer term agreement with Marvel for their characters, so there was an amount that had to be paid upfront for that. Earlier in the year, we had paid an amount upfront for DC Comics. In total, out of the cash we have used so far this year, we’ve used up about $3 million in cash just for these types of royalty payments, and those two comic book companies that I mentioned, those are longer term agreements, so it’s not something that’s going to happen every quarter. Clearly, there may be some of it. If there is a good product that comes along out there in the marketplace that looks like we can take that and turn it into a slot machine that will knock the roof off the place, then we will consider investing in those going forward, but it’s not a recurring thing.

Gary Dvorchak – Aviance Capital

You had pointed out that the poker is falling off a little bit more than you would have expected, but going forward, should we even model any growth there? Is there going to be any sort of additional marketing efforts in GTECH or is that something we should figure to minimum and not really worry about it anymore at this point?

Steve Taylor

I think you should forecast that as being modest growth going forward. We’re working with GTECH alongside our licensees to grow and reinvigorate the poker room that we moved into, so that we’re bucking the trend in terms of poker not being a strong performer across the industry, but poker is a very high cost operation, and unless you got huge scale, it’s not that profitable an enterprise; hence, we’re focusing on casino.

Operator

The next question comes from the line of Rah Allingham with Hartman Company.

Rah Allingham – Hartman Company

On the balance sheet, what is in the restricted cash line and can you expand on the impairment of the Asian investments?

Steve Taylor

I’m pleased to say that what’s included on the restricted cash line on the balance sheet as of today is zero because, that amount of money, we had $5 million set aside in June as restricted cash which was necessary under our licensing agreements with the Licensing and Gaming Authority of Malta. We have gone through and made some changes to the domicile where we actually keep the player funds. That has satisfied the LGA that we’re able to surrender that letter of guarantee that gave rise to those funds being restricted, so as of the end of the third quarter, you’ll not see any restricted funds in CryptoLogic’s balance sheet. As far as our Asian investments go, there are very sort of stringent rigorous accounting rules as to the way that you have to go about valuing each individual investment that you have on a portfolio. In 2007 and in very early 2008, we made an investment in some early stage companies that were related to online gaming in Asia Pacific. With the current economic trends the way they are, early stage companies in many cases are struggling a lot more than some more fully developed companies, so when we went through our accounting process at the end of this particular quarter, it became apparent that we were going to have to book a provision against some of them. Having said that, we still are generating revenue out of Asia Pacific, and some of our other investments are doing fine.

Rah Allingham – Hartman Company

So should we be looking for any further impairments going forward, do you think?

Steve Taylor

Given the economic circumstances and the business plans that we have at the moment, I’m not anticipating any. Certainly, we are doing everything that needs to be done to protect CryptoLogic’s money that’s invested in all those investments.

Operator

(Operator Instructions). The next question comes from the line of Jane Anscombe with Edison Investment.

Jane Anscombe – Edison Investment

I just wanted to pick up a little bit on the slow rollout of games by licenses whether that was as you said really due to their internal priorities or whether that was to do with the market and the tough trading in the casino market. Can you elaborate on that?

Brian Hadfield

I don’t think there’s one thing that governs it. In some cases, it’s the availability of testing because despite the fact the games have been qualified on GTS or Orbis, before a licensee will actually release them out to the traders; they do a significant amount of testing as well. So, it mainly comes down to priorities internally, and the priorities could change for a variety of reasons. As I said, it could be the availability of testing, it could be another priority that comes into place, it could be a host of things; so there is nothing that is a single impediment, and I think the most important thing is that there are 13 of the 15 games available from August and there are 6 of the 10 available from GTS. So, they should run out fairly quickly in the second half. I can certainly say this, but from our perspective there is nothing that we’re doing that would impede anyone from going live.

Jane Anscombe – Edison Investment

You referred to currency effect in terms of the cost. Don’t you have any currency effect from the revenue line?

Stephen Taylor

Yes, but the impact is a lot lower; it’s actually less than $300,000 in the quarter.

Jane Anscombe – Edison Investment

Finally, you’ve referred to analyst expectations, and I know you do obviously not want to set or re-set guidance apart from saying that you’re anticipating possibility, if I heard you right, but what do you view as analyst expectations at the moment just to give us a rough idea?

Stephen Taylor

Well, our view is, we have a couple of US-based firms that follow us and publish on us, so I think those are the guys that we’re referring to.

Operator

We have a followup question from Brian Kinstlinger - Sidoti & Co.

Brian Kinstlinger - Sidoti & Co.

I assume that you’re going to keep reporting the branded games now that has become meaningful. It’s something we’re all going to model separately; will you reporting that every quarter, the revenue from that?

Brian Hadfield

Certainly we will, Brian.

Brian Kinstlinger - Sidoti & Co.

Stephen, I asked you roughly, per branded game, I get to the $38,000 number and you said it would be lower, but $8 million over 110 games; that’s $73,000. So, I know some games are high and some are low. Take me through why it was lower, but here at the end of the year you’re going to have $73,000 and that’s before things really even get ramped up.

Stephen Taylor

Sorry Brian, I didn’t get you.

Brian Kinstlinger - Sidoti & Co.

$8 million from the branded games and…

Stephen Taylor

Actually, what we said was $8 million from new licensees. So, out of that $8 million we will have about $6.5 million from branded games and the balance of it is from other new licensee business that we brought on board.

Brian Kinstlinger - Sidoti & Co.

So, that still puts you well above, and that’s a good point, but that still puts you well above $38,000 per game, right?

Stephen Taylor

We’ve been through the math comprehensively with the rollout schedule. Basically what we’ve done Brian is we’ve taken out the rollout schedule that we refresh every week after discussions with licensees. We take the latest experience based on relative sizes of licensee and what we perceive as the size of their casino and we go through and do a rigorous costing out exercise based on them releasing something in a particular month given the size of their casino; this is what is going to be the revenue generation from the overall branded game exercise and it’s basically coming out in the range of about $6.5 million, and we don’t have anybody in that calculation that that at the top end would be $35,000 a game, and we’ve gone through and done a very rigorous to come up with that $6.5 million number.

Brian Kinstlinger - Sidoti & Co.

Right. I am just saying $6.5 million divided by 110 gets you to a lot higher than $38,000, but we can take that offline.

Stephen Taylor

$6.5 million divided by 12, Brian, and then by 100 and some odd games gets you to a much lower number.

Brian Kinstlinger - Sidoti & Co.

Why don’t we take it offline; we’ll talk about it later.

Stephen Taylor

Okay, let’s talk about that.

Brian Kinstlinger - Sidoti & Co.

William Hill; I hate to ask this question, but you answered one of the other guys, and in the past you haven’t talked about what William Hill perhaps produced to you, but it’s the most critical risk to the story of what’s going to go away. It seems like right now and since we’re on a public forum, why would you not feel comfortable talking about it. It’s a client that has left you and may leave you on the casino side. Why not give us a sense of what the investor’s view as one of the biggest risks going away from the story?

Stephen Taylor

As we’ve always said, we’ve got contractual obligations not to make disclosures of revenue per licensee and while I understand that your comments and your concern about it being material, I do feel that we continue to have excellent relationships with William Hill. We don’t have anything definitive to say, but I would say that those relationships may in fact continue to be good and developed over the balance of the year, and I think that’s about all we’re willing to say.

Brian Kinstlinger - Sidoti & Co.

Can you tell us if they’re your second biggest customer in casino next to Intercasino?

Stephen Taylor

In casino, they are in our top three, although some of the other ones are gaining in terms of size, and we anticipate that run rates by the latter of the year that at least one other one will surpass them.

Brian Kinstlinger - Sidoti & Co.

The last question I have is a question that I get from most investors who want to buy your stock but get reluctant and that is, are insiders are buying stock. I know it’s more difficult to see on some of your filing in London; so give us a sense or if anything happened this quarter and what your plans are because if this plan plays out, and although the analysts laid it out in the fourth quarter, the stock is obviously going to go a lot higher, so I am just curious why management wouldn’t be buying stock as well.

Stephen Taylor

Well, Brian, the answer to that is that the board has all stated that their intention is to buy stock. I certainly can’t comment on the levels that people will do and I wouldn’t do that generally, but I think you will see that board members and insiders will buy stock.

Brian Kinstlinger - Sidoti & Co.

Have the two of you?

Stephen Taylor

I did not buy any stock in the last quarter; no, but I will be buying stock.

Brian Kinstlinger - Sidoti & Co.

I love the story, and I am just curious why you guys aren’t doing a little bit more. I mean it’s the top question I get every time, so that’s why I am curious.

Brian Hadfield

Part of it is that as you know Brian we have had very limited windows based on the way that we report, but Steve can answer the question, but you should anticipate that you will see insiders buying stock. The other thing that we’ve talked about once before is it’s difficult to comment on personal circumstances.

Stephen Taylor

Brian, in terms of those on the board, I do own at the top end of what everybody owns in stock and I continue to be of the view that I will invest in it.

Operator

We have a followup question from Rah Allingham – Hartman Company.

Rah Allingham – Hartman Company

I was just wondering what percentage of casino revenues the top three customers account for.

Stephen Taylor

We’ve always said that out top four or five customers make up between 80% and 90% of our revenue historically. That number will change because with many of the new signings that number is basically in transition at the moment. While we’re still dependent on a relatively smaller number of customers at the moment, by the time we’re exiting the back end of this year our revenues will be far more evenly spread.

Operator

There are no further questions registered at this time Mr. Hadfield.

Brian Hadfield

Thank you again for joining us today. I look forward to keeping you posted on Cryptologic’s progress as we implement our plan to deliver profitability in 2009 and long-term growth in the years to come. Thank you for attending.

Operator

The conference call has concluded. You may disconnect your telephone lines at this time. We thank you very much for your participation.

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Source: CryptoLogic Limited Q2 2009 Earnings Call Transcript

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