|
Cryptologic Limited
1999 3rd Quarter Results Conference Call
October 26, 1999 - 11:00 a.m. EDT
Chairperson: Andrew Rivkin, President, CEO & Director
Operators: Ladies and gentlemen, thank you for standing by. Welcome to the Cryptologic Limited 1999
Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will
conduct a question and answer session. At that time, if you have a question, you will need to press the "1"
followed by the "4" on your push-button phone. As a reminder, this conference is being recorded today, Tuesday,
October 26th, 1999. I would now like to turn the conference over to Mr. Andrew Rivkin, President and Chief Executive
Officer, Cryptologic Limited Please go ahead, sir.
Andrew Rivkin: Good morning, everyone, and welcome to CryptoLogic's third quarter conference call. My name is Andrew Rivkin, and
I am the CEO, President and Director of CryptoLogic. Joining me today are Mark Rivkin, COO and Executive
Vice-President; Jenny Solursh, Senior Vice-President; and Harvey Solursh, Chief Financial Officer; as well
as Nelson Lee, Director of Finance.
I would like to begin the conference call by highlighting the company's third quarter results, and then I'll
turn the floor over for questions.
Third quarter results: total revenue for three months ended September 30th, 1999, totaled $8 million US,
which was an increase of $2.9 million, or 57% over the same period last year. At the same time, net income
totaled $4.8 million, which was an increase of $1.5 million, or 45% over the same period last year. As a
result, earnings per share in the third quarter 1999 were $0.56; fully diluted earnings were $0.39 in the
third quarter.
Total revenue for the nine months ended September 30th, 1999, totaled US$24.2 million, which was an increase
of $7.7 million, or 47% over the same period last year. Net income for the nine months totaled $15.1 million,
an increase of $4.6 million or 44% over the same period last year. As a result, earnings per share in the first
nine months of 1999 were $1.77, which compared with $1.26 in the first nine months of last year. On a fully
diluted basis, earnings per share were $0.98 US for the first nine months of 1999, which compares with $0.70 US
for the first nine months of 1998.
At this time, I'd like to turn the floor over for questions.
Question and Answer Session
Operator: Ladies and gentlemen, we will now begin the question and answer session.
If you have a question, please press the "1" followed by the "4" on your push-button
phone. You will hear a three-tone prompt acknowledging your request. If your question has been answered
and you wish to withdraw your polling request, you may do so by pressing the "1" followed by
the "3". If you are on a speakerphone, please pick up your handset before entering your request.
One moment, please, for your first question.
Your first question is from Michael Emonotis, private investor. Please proceed with your question.
Michael Emonotis: Hello, gentlemen.
Andrew Rivkin: Hello.
Michael Emonotis: Good morning. I was wondering what your market share is in comparison to
Starnet's and how many of your licensees are up and active and reporting earnings?
Andrew Rivkin: It's very difficult to estimate what our market share is with respect to Starnet,
and even with respect to the rest of the industry. There are a number of private companies operating in our
sector of the Internet gaming industry - in other words, providing software. Those companies do not report.
Starnet reports, but they report differently than CryptoLogic, so it's very difficult to estimate or to compare
market share between the two companies.
We have 15 licensees. All of those licensees are private companies, so none of those licensees report their revenues.
Michael Emonotis: Okay, and one last final question...
Andrew Rivkin: Sorry, could I just add one more thing to that. At the same time, our belief is
that we're market leaders in the provision of Internet gaming software.
Michael Emonotis: Okay. Just last question. What kind of implications does Claude Levi have
with respect to your stock price?
Andrew Rivkin: I don't think it has any impact whatsoever. Mark, why don't you field that question?
Mark Rivkin: Yeah, I think that Claude Levi is a part owner in one of the licensees that IOLL,
our wholly-owned overseas licensing company, has been dealing with over the past few months. From what we
understand, there have been no problems with dealing with that licensee. So I don't think it has any effect
on our stock price.
Michael Emonotis: Okay. Well, wish you guys a lot of luck. Apparently he's been pretty
difficult with the other companies that he's...
Mark Rivkin: Well, I think he was dealing directly with those companies, and in this case,
he's not dealing directly with us, so I don't think we're really concerned about Claude.
Michael Emonotis: Okay, great. Thank you.
Operator: Ladies and gentlemen, if there are any additional questions, please press
the "1" followed by the "4" at this time. [pause] Your next question is from Ross
Peters, private investor. Please proceed with your question.
Ross Peters: Good morning, gentlemen. Once again, congratulations on a great quarter.
It's always nice to see. Just a question for you around your revenue base. If I understand correctly,
your revenue base has two main components. It would be a one-time fee for new licensees, and also
transactions fees. If that's correct, what I'd be interested in is what has been the relative growth
in those two components in your revenue base on a quarter by quarter basis, and also, how are you doing
on a nine-month basis?
Andrew Rivkin: Can you give us one moment on that?
Mark Rivkin: Yeah, well, actually, I can probably, in general terms answer the question
for the most part. That is correct. There's two components of revenue. The one-time customisation fees
in 1998 totaled about a million dollars out of about $18 million in total revenue in 1998. So it's a
very small component of total revenue. Ongoing revenue accounts for the bulk of CryptoLogic's revenue.
In 1999... that's year to date in 1999, of a total of $24 million in revenue, there's only been $100,000
in customisation fees.
So you can see the one-time fees in 1998 were not that significant. In 1999, they're almost
non-existent. So they've been shrinking relatively with respect to ongoing revenue, and in
terms of our total revenue.
Ross Peters: Great. Good. Thank you very much.
Operator: Your next question is from Marc-André Chouinard, CTI Capital. Please
proceed with your question.
Marc-André Chouinard: Okay. Hi, congratulations for your results. I just wanted
to know how is your NASDAQ listing going on?
Andrew Rivkin: NASDAQ has responded to us with a deficiency list in the ordinary course.
They've made a number of requests for material. That material they're asking for... there's nothing that
gives us any cause for concern at this stage. There is a lot of work to be done to pull all that stuff together.
Much of it is from the formation of CryptoLogic and our reverse take-over of Biroco in 1995, and early 1996. All
that stuff has to be pulled together and delivered to them.
Again, this is stuff that they're requesting in the ordinary course, and it doesn't give us any cause for
concern at this stage.
Marc-André Chouinard: Okay, when do you expect to be listed?
Andrew Rivkin: Well, I think that probably in light of the deficiency list that they
provided us and the amount of time that we estimated it will take to pull all of that stuff together,
it won't be for another couple of months, anyway.
Marc-André Chouinard: Okay. Thank you very much for the moment.
Operator: Your next question is from James Denham, Veritas Asset Management. Please
proceed with your question.
James Denham: Good morning. I wonder if you could give us some insight into how long the
negotiations took with William Hill. What sort of due diligence was done by William Hill, and what sort
of timing we're looking at for... I think I've read at the end of the month - the agreement would be
disclosed. But perhaps you'd just flesh out that?
Andrew Rivkin: Effectively, the process took about six to eight months, from start to
effectively finish. They did significant amount of due diligence. In addition, as it is our policy and
our subsidiary's policy, we did significant due diligence on them with respect to their probity. The
same checks that we've done on every licensee who has licensed CryptoLogic software.
Just to give some people some background on William Hill, they're one of the largest sports betting
companies in the world. They have 9,000 employees, 1,500 land-based betting outlets in the United Kingdom.
They do about 1.8 billion pounds of turnover per year. All of their betting shops are in the United Kingdom,
and their estimated market share is effectively 42% of the total market.
So they're a very... in telephone wagering. They're a very large player. William Hill is effectively the first
major land-based operator to get into the Internet gaming marketplace. We're extremely happy that they chose
CryptoLogic. We think that obviously we provide the best technology and the best solution for Internet
gaming software, and hopefully will become market leaders in the provision of our software to these Tier 1
land-based operators.
They did six to eight months in terms of sales cycle, which is not significantly different than the
sales cycle for the group of smaller licensees who we've licensed our software to previously.
So there was a bunch of due diligence done by both companies throughout that six to eight month period.
James Denham: Okay, thank you. And financial terms. Are you going to disclose them nearer
or further away in terms of timing?
Andrew Rivkin: No. The financial terms - we never have disclosed the financial terms
between CryptoLogic and its licensees. They're kept private for competitive reasons, and I think that
our overall business model, which has been successful for the past three years, which has, in fact, been
extremely successful, is maintained in this agreement and will be maintained going forward.
James Denham: Okay. Thank you.
Operator: Your next question is from Brian Lafleur, Scotia McLeod. Please proceed with your question.
Brian Lafleur: Good morning, gentlemen. In a recent interview with StockHouse,
I think you were quoted as suggesting that you had $36 million in cash. That was prior to your third quarter.
Can you give us an idea what the cash on hand is right now?
Andrew Rivkin: Yeah, actually that was an interview that Mark did. At the end of the third
quarter, we had US$41.4 million in cash and cash equivalents, and restricted cash.
So about $36 million in cash and cash equivalents, and $41.4 million in total cash.
Brian Lafleur: What is restricted cash?
Andrew Rivkin: Restricted cash are reserves that are held for credit cards. They're
letters of credit which guarantee against credit card fraud.
Brian Lafleur: Okay, great. Now you also alluded to a comment there about potentially
splitting up the company and you'd have a need for additional capital. Can you give us an idea what it
would take to finance your e-cash business if you took it separate? Initially.
Andrew Rivkin: Well, again, we're just discussing that as one potential strategy. So we
don't have a number that I can give you today.
Brian Lafleur: Okay, and you indicated that you'd do some through the existing shareholders.
That'd be through a rights plan, I would imagine?
Andrew Rivkin: that's what's being discussed right now. But there's nothing... there's
not a formal plan that we can discuss at this time.
Brian Lafleur: Okay.
Mark Rivkin: There's an independent committee of the Board that's reviewing proposals
for how to finalise this transaction, and I think that we're still probably a number of months away
before we're able to let our shareholders know exactly which shape the transaction's going to take place.
Brian Lafleur: Okay. What does that suggest about your e-commerce product? Is it
ready, right now, to roll out, or is it still in the development stage?
Andrew Rivkin: Well, it continues to undergo development. I think that it's in the
state right now where it can support and handle transactions. I should make it clear to our shareholders
that this e-commerce application is a very different application from the one that CryptoLogic operates.
Its functionality is very well suited to micro-transactions and a number of other transactions, which is
not interesting in respect of any ability to deal with a standard Internet commerce or Internet commerce
for Internet gaming transactions. So it's a very different application.
Although it's ready to be rolled out and it's ready to support transactions, it's important that it
is a separate entity before it really can be marketed on a large scale.
Brian Lafleur: Okay. Just as far as licensees go, William Hill obviously was a very
attractive deal. How many more would you expect to have in, say, the next fiscal year, starting 2000?
Would be four or five a number that you're comfortable with, and I'm referring geographically to Australia,
let's say, or Brazil, or South America?
Andrew Rivkin: We'll do in the year 2000 between two and four. We've been doing numbers
in that range through 1998 as well as 1999 as well. I think that our strategy is very clear. We're going
after the large Tier 1 land-based operations that exist throughout the world, in Australia, in Asia, in
Europe, in England. Those are the groups that we're going after.
So although the number of licensees is not going to be that significant, the quality is absolutely the
best that exists in the world.
Brian Lafleur: Okay, great. Just one more question. Could you bring us up to date of
your understanding where the Kyl Bill stands, and what the, again, potential impact might be if it does pass?
Andrew Rivkin: Well, there has been a Bill introduced in the House, the Goodlatte Bill.
That was introduced last week. So based on our initial review of that Bill, it is different than the Kyl
Bill. We don't know today whether that's a step forward in terms of getting a prohibition on Internet
gaming legislation in place, or it's a step backwards for them. Because we had a similar situation in
1998 which confused the whole process.
And this Bill might serve the same end in 1999. So we're having, effectively, our political analyst look
at the new Bill that was introduced, and we should have word back over the next couple of weeks. There
was a good article on Yahoo magazine on Internet gaming and the legislation, so there... in the last
little while, aside from there being the new Bill introduced, there hasn't been a lot of change, and it's
too early to tell what the impact of that new Bill will be - whether it'll serve to help the process in
the United States, or hinder the process. It's just too early to tell.
Brian Lafleur: I see, okay. And last but not least, in conjunction with your filing on
the NASDAQ, do you have a US broker working with you? Is the name public?
Andrew Rivkin: Yeah, those documents are not public documents until they are. completed.
So we'll keep that quiet for now. We are working with a number of US brokers who are doing a number of
things for the company, including providing advice - standard investment banking advice - and in addition,
we've got, as part of our NASDAQ filing, a number of market makers who are on the filing. But again,
I don't believe those documents are public documents until the application's completed.
Brian Lafleur: Okay, thanks very much.
Operator: Your next question is from Reid Jenner, private investor. Please proceed
with your question.
Reid Jenner: Good morning, gentlemen, and lady. Had a couple of questions. Most of mine
are being answered as we go here, but one, I'm still a little concerned with the low price earnings multiple,
and I see that your year over year revenue gains are very impressive, but sequentially, for the last three
quarters, they appear to be somewhat flat. And I'm wondering what plans you might have in respect of
perhaps some of the new languages that your software is being made available in. You've talked about some
of the new licensees. Can you tell us a little bit about how you might be ramping up revenues sequentially?
Andrew Rivkin: Yeah, I think that it's important to note that the second and third quarters
are not as good with respect to growth as the fourth quarter and the first quarter is. There has been
some seasonality. It's been demonstrated at least two years and probably three years in a row, where - we feel that... and I think this applies to the Internet in general for a lot of applications - where people in the summer are not spending as much time in front of their computers as they are in the wintertime.
So we're very proud of our second and third quarter results this year because we were just flat. There was
no downturn at all, which is better certainly than the previous year. So I think we've done a much better
job in 1999 than we ever have done in the past. I think that there's a number of very exciting things going
on. Obviously William Hill is something that we think is going to be terrific for the company. Version 4.0,
which is coming out in the near future - release of new versions always in the past have helped to boost
revenue and we're hopeful that with this new technology available to our licensees that they'll be able
to get out there into the marketplace and generate better results.
Reid Jenner: Okay. Thank you. Can you tell me a little bit about... share with us the
breakdown in terms of revenues between the different languages that your software is made available?
Andrew Rivkin: Yeah, I guess that information belongs to our licensees. I can tell you
that we have a Japanese version, an English version and a Spanish version that I believe is going to be
released in the near future. Version 4.0 will contain a language module which will allow licensees to
add a number of languages, including Chinese, Italian, French, German, Portuguese, etc., and I think
that that, as part of the whole suite of functionality that will be provided in Version 4.0 will be
very valuable for our licensees.
Reid Jenner: When did you say that would be released?
Andrew Rivkin: Soon.
Reid Jenner: Okay. Alright, thanks very much.
Operator: Your next question is from Roy Rustomji, private investor. Please proceed
with your question.
Roy Rustomji: Hi, my name is Roy. I was just wondering why would it take you two
months to complete the information.
Andrew Rivkin: For the NASDAQ?
Roy Rustomji: Yes, please.
Andrew Rivkin: Yeah, they're basically... as part of their ordinary course review of...
Roy Rustomji: I know that, but why - just tell me why would it take two months
to provide the information? You're in the computer age. You should be able to provide all the
information within a couple of days. Not two months.
Andrew Rivkin: Sir, one of the issues is we did a reverse take-over of a company called Biroco...
Roy Rustomji: I know all this bullshit you are giving us for the last so many months,
eh? Let's just talk something sensible, for God's sake. You are a CEO of a big company.
Andrew Rivkin: Yeah. No, I recognise that, but it's really... the process is driven in
part by NASDAQ. We've just received their...
Roy Rustomji: No, no, no. Don't tell me that. You're not providing any public
relations or anything.
Jenny Solursh: We're still in the process of interviewing public relations...
Roy Rustomji: You are still... that what happens...
Andrew Rivkin: Sir...
Roy Rustomji: You keep postponing, postponing, postponing everything. And you
are screwing up the investor. Your sales are down already to the...
Andrew Rivkin: Sir, perhaps you could call and we could answer these questions for you.
Roy Rustomji: You can't answer, because you are not a honest open man. [hangs up abruptly]
Operator: Your next question is from Howard Tward, private investor.
Please proceed with your question.
Howard Tward: No, I think you've answered my question. The only thing I
wanted to ask is that you guys are pretty proactive with your company, and I suppose you
expect to see these... the price of the stock much higher in the future?
Andrew Rivkin: We hope so. I mean, our job is certainly to work towards that end.
Obviously there are a number of challenges and those are the things that we constantly try and
overcome and improve upon. I think that we've had 12 quarters in a row of terrific earnings, and
we're going to continue to build on that and I think that there will be a time when those numbers
will be recognised in the marketplace in general. At least I hope there will be.
Operator: Your next question is from Martin Mullally, private investor. Please proceed
with your question.
Martin Mullally: Hi, can you tell me specifically a little bit of Version 4. You
earlier talked about horses, lottery, bingo, etc., and when you expect those to come on line?
Andrew Rivkin: Yeah, there's a number of new gaming features which we're adding,
lotteries, bingo. We've got a brand new process for registration and sign-on and downloading of
the application. So we're reducing the number of steps that the end user has to go through significantly,
making it a lot easier for them to get access to the software.
We're introducing avatars for players and dealers. So, in other words, instead of just seeing a pair of
hands, the player will actually see the entire figure of the dealer and the dealer will be able to speak,
and players will have avatars in the casino as well. So there's a whole suite of functionality which we
think is very exciting that is... that doesn't exist today that we believe will take at least a year
before our competitors are able to create the same suite of functionality.
I can't tell you exactly when it's going to be out, but what I can say is it'll be out soon. Probably what
that means is either late 1999, early 2000.
Martin Mullally: Thanks. What about the number of outstanding options and warrants? I know
that was mentioned as possibly an issue with NASDAQ.
Andrew Rivkin: Yeah, there's been a number of discussions with advisors in the US on how
to reduce the number of outstanding warrants and options. There's no resolution yet, but as we get closer...
we're hopeful that very early on in the process of migrating to the US marketplace that we'll be able to
find a way to reduce that number significantly.
Martin Mullally: Great. Last question. What percentage of your bets in this last
quarter came from the United States?
Andrew Rivkin: All our revenue is generated from license fees that are earned from our
licensees in Antigua, Curaçao and Dominica. They process wagering transactions from the countries around
the world. So, again, that's information that belongs to...
Martin Mullally: Yeah, I guess that you'd share that exact number with us in earlier
conference calls, and I was hoping you'd be able to do the same again.
Andrew Rivkin: Yeah, I don't have that. Actually, that's something that I have to go
back to the licensees to gather. But I don't think that there's been any radical change in that number
between the last time we had the opportunity to talk to the shareholders. I think that with the William
Hill relationship, with the new languages in Version 4.0, with the opportunity for us to do business
with some other Tier 1 international land-based groups, we'll be able to make significant strides
forward in reducing the percentage of revenue that's generated from the US, but I don't think there's
been any change since the last opportunity we've had to talk about that.
Martin Mullally: Great. Thank you very much.
Operator: Your next question is from Phil Fine, Bridge Business Financial News.
Please proceed with your question.
Phil Fine: Yeah, Mr. Rivkin, if I can just ask you just to summarise for me what's
happening. I guess you're trying to get a listing on NASDAQ - is that right? - right now?
Andrew Rivkin: That's correct. We've made application to NASDAQ.
Phil Fine: And when did you... just fill me in on the chronology of that.
I wasn't that familiar with it. You made application for listing on NASDAQ when? Is that last year...
Andrew Rivkin: September... August-September of this year, we filed an application with NASDAQ.
Phil Fine: And you just... I think you were talking to an investor or an analyst and
you were just updating them... when do you expect to have that filing completed?
Andrew Rivkin: Well, we've just received our deficiency list. We feel that it'll be
another couple of months before we get final word back from NASDAQ.
Phil Fine: Okay. Deficiency list means what? Just, let's say, things that you have to...
Andrew Rivkin: Deficiency list is effectively their ordinary course request for
information on CryptoLogic and, in this case, as I was trying to get out to the previous investor,
CryptoLogic was formed through a reverse take-over of a company called Biroco. That company was 40 years
old. So part of their ordinary course request for information include providing effectively a history
of the company that dates back 40 years. So that's going to take some time to pull together and send down to them.
But I think that that process should be completed in the next couple of months.
Phil Fine: Okay, and, let's see. So basically you're looking for a listing probably some
time next year, I guess. Is that right, maybe?
Andrew Rivkin: Yeah, late '99, early 2000, again, is probably reasonable.
Phil Fine: To be listed on NASDAQ then.
Andrew Rivkin: Yeah, filing an application is no guarantee that NASDAQ will approve us,
and allow us to list. Our estimates are this process should be finalised over the next couple of months.
Again, to some extent, NASDAQ drives the process. How long they take to respond to our provision of
information is important. And to some extent, that's even beyond their control. It relates to how many
filings they're processing at a particular time.
So it's very difficult - it's not something that exists in a vacuum. I can't tell you exactly when it's
going to be done, but I expect probably over the next couple of months.
Phil Fine: And CryptoLogic right now trades on which exchange?
Andrew Rivkin: On the Toronto Stock Exchange.
Phil Fine: And is it based in Toronto? Your company's corporate headquarters are in Toronto?
Andrew Rivkin: That's correct.
Phil Fine: Okay. And just briefly, why are you going for a NASDAQ listing? Is it just
greater visibility in the investment community or...?
Andrew Rivkin: I think ultimately to increase shareholder value, I think there was
a comment before that our multiple is not as good as some of the multiples that other companies are
getting with respect to development of Internet software in the US marketplace. And we feel that we
can improve that to some extent through the support of some US brokers and a NASDAQ listing.
Phil Fine: That's a price to earnings multiple, I presume. Is that right?
Andrew Rivkin: Effectively.
Phil Fine: So other software companies per se, or just software gaming companies, like your own?
Andrew Rivkin: I think that there are really not that many software gaming companies
like ours, but I'm just talking about Internet software development companies in general.
Phil Fine: Okay, thank you.
Operator: Your next question is from Jason Keogh, MRS Security Services. Please proceed with
your question.
Jason Keogh: Hi, there. I was wondering if you could give me some information regarding
the share buyback?
Andrew Rivkin: Yeah, in the third quarter, we purchased 9,400 common shares, total number
of shares purchased were just under 35,000. We still have a right to purchase another 390,000. The buyback
process is continuing and yeah, I think we've stepped it up slightly for the fourth quarter.
Jason Keogh: Are those shares that were bought by September 30th, or was it settled by
September 30th? Do you know?
Andrew Rivkin: Yeah, they were bought and settled by September 30th is my belief.
Jason Keogh: Okay, because there was some larger blocks going through at the end.
Do you have any idea who might have been purchasing those blocks?
Andrew Rivkin: No, I have no idea.
Jason Keogh: Okay. Can give us some... a little bit more information about how you plan
handling a stock split, and at what price you might be...
Andrew Rivkin: The stock split... I think I commented this probably in the last
conference call. The stock split is on hold for the moment. We've been advised again... in light
of our application to NASDAQ, we've been advised by the US brokers who are co-operating with us that
it would not be wise to do a stock split until the value of the stock was much larger. So we're not
really doing anything with respect to a stock split. We don't expect to be doing anything with respect
to a stock split in the near future.
Jason Keogh: Okay. And what type of multiple do you expect for your stock, compared to
other Internet companies in the States?
Andrew Rivkin: Again that's a determination that the marketplace makes. It's not a
determination that I would make. My expectation is that there will be some better price multiples
on NASDAQ than we could achieve on Toronto. What that is I don't know, and again, that's just my
own expectation effectively.
Jason Keogh: Okay. And can you provide us some more information regarding the sports
book? Like, who is using it and the percentage of revenue?
Andrew Rivkin: Yeah, we have effectively... what is it now? Three... yeah, it's not
three licensees, three brands now, that have picked up the Sports Book application. It is with
respect to revenue again, that's information that belongs to the licensees.
What I can say is that we focus on games that relate to random number generators, not on sports
betting. So our strength is in games like roulette and blackjack and casino-style gaming, not on sports
betting. So I expect it's a very small number compared to the overall mix of games in total.
Jason Keogh: Okay, and William Hill, they have licensed your casino software, and with
that they'll be using your e-cash product, is that correct?
Andrew Rivkin: That's correct. Again, I think if you take a look at the last press release,
we're in the process of finalising agreements with them, that we've signed a heads of agreement with them,
but we're in the process of finalising those agreements. They have licensed our casino software, as well
as our electronic commerce software.
Jason Keogh: Will they be using... possibly using that e-cash software for any of their
current business?
Andrew Rivkin: Yeah, there's been some talk about that. In the e-commerce software they'd
be using would be the e-commerce software that CryptoLogic has in place today. It would not be the e-commerce
software that is being further developed by our new subsidiary. There's been some talk about that, but whether
or not anything happens there, nobody really knows. The value of the agreement is in the fact that they're going
to be using our Internet gaming software, not in any other area, really.
Jason Keogh: Okay. Can I just talk a bit... ask you a couple of questions about Australia?
Andrew Rivkin: Sure.
Jason Keogh: You've... there's a period in which time the... it takes six months to get your
software approved in Australia, is that correct?
Andrew Rivkin: Yeah, I think that somebody picked that comment up from Mark's interview
with StockHouse. I think that it'll be a minimum of six months to get the software certified by the
Australian authorities. There is only one other company who has gone through that process. It took them
18 months. So, I think that some range between six months and 18 months is ultimately the length of time
it's going to take. We've started that process. We're encouraged by what we've seen so far. But again,
this is not something that operates in a vacuum. It depends in great part on the Australian authorities
and how quickly they're able to respond, and how many other applications they're processing at the same
time. So it's impossible for us to estimate the length of time it'll take to complete this process. But
some number between six months and 18 months is what's likely.
Jason Keogh: And that's from now? That's from today?
Andrew Rivkin: Yeah. We've recently started the process. We've had a number of
Australians in our offices over the last several weeks reviewing our software offering, and I guess
that's effectively when the process started, and again, six to 18 months is best estimate of when it'll be done.
Jason Keogh: Okay. Can you... how many countries currently have legalised Internet gambling?
Andrew Rivkin: There are now more than 25 countries with laws in place to permit Internet
gaming. Now those countries include the United Kingdom, Australia, Germany... there's a list. Obviously,
there's a bunch of countries in the Caribbean. What those countries will do with those legislations, we
don't know. So although there are laws in place to permit Internet gaming, whether there ever a license
is granted or whatever happens with that legislation is impossible for us to really say.
Austria is another country that's operating a lottery; Liechtenstein; South Africa. So I guess our feeling
is that the United States is really the only area of the world which seems to be very anti-Internet gaming,
and most of the rest of the world has taken a very positive approach towards Internet gaming - with Australia
being the clear leader in that sort of legalised and regulated Internet gaming approach.
Jason Keogh: Okay. Could you give us a little bit more information about your e-commerce
product that will not be part of the CryptoLogic?
Andrew Rivkin: No, I can't really talk about that until it's released. The functionality
is sort of... has been kept secret over the last year and we'll continue to keep it secret until it's out
there in the marketplace.
Jason Keogh: Okay. Thank you very much.
Operator: Your next question is a follow-up question from Howard Tward. Please proceed
with your question.
Howard Tward: Yeah, just wondering - I've noticed that the trading... the volume that's
traded on your stock is quite thin over [lost line]...
Andrew Rivkin: Sorry. Was that the end of the question? Actually, could you repeat that for me?
Howard Tward: ...is quite thin. I'm going to pick up. Hello?
Andrew Rivkin: Thank you.
Howard Tward: Okay, is that better?
Andrew Rivkin: That's better.
Howard Tward: Yeah, I noticed that the volume - your trading volume is quite thin on the
stock basically for a greater percentage of the time, and just before earnings, etc., I think that it picks
up somewhat. Do you expect in the future... I suppose if you get the NASDAQ listing, you expect and increased
volume because of more exposure, but say you just stay on the TSX, do you expect the stock to perhaps generate
more of an interest?
Andrew Rivkin: Well, I think that as we probably mentioned in the last conference call
and I think it was said earlier as well that we are interviewing PR firms. Part of our goal is to achieve
better price earnings, and have better liquidity in the share price, and we're hopeful that even with just
the Toronto Stock Exchange, we'll be able to improve that through better investor relations, better public
relations over the course of the next six months to a year.
So, yeah, our goals are certainly to have better liquidity and higher price-earnings ratios, but whether or
not we're able to achieve that, I guess remains to be seen. We'll work towards those, obviously. Those two
things are important for shareholders.
Howard Tward: I just wanted to say that I heard that other fellow giving you a
tongue-lashing, but I think you guys are doing a great job. And I just hope you keep it up.
Andrew Rivkin: Thank you.
Howard Tward: Okay, bye bye.
Operator: Your next question is a follow-up question from Martin Mullally. Please
proceed with your question.
Martin Mullally: Hi, you mentioned earlier on in the conference call that you
thought... you weren't able to give exact figures, but appear that CryptoLogic was, in your mind,
the current market leader. And then you talked a little bit about seasonality and about how both
revenues and net income have been flat for the past three quarters. But then, when you look at both
of your competitors, Boss and Starnet, it appears that Starnet, the last quarter over quarter,
showed 25% growth from gaming alone. So it appears they're actually stealing share from you.
Am I reading that right?
Mark Rivkin: Starnet has a different business model than we do. They're objective
is to sign on as many licensees as they can, and they charge a licensing fee for that. I think
if you look at their numbers, their revenue numbers and you separate out the one-time licensing
fees, from signing on a new licensee, you might see that there's a drop in their ongoing licensing
revenue. Do they break out their one-time licensing fees from their ongoing license fees?
Martin Mullally: I think they do. I don't have that figure in front of me. But even
if I think if they broke that out, you'd see sequential growth, quarter over quarter.
Andrew Rivkin: Yeah, sorry. We didn't say we were flat for the last three quarters.
We said we were flat quarter over quarter in the third quarter. Again, we're...
Martin Mullally: Yeah, no. I understand the difference in the models of quality
versus quantity and how you guys are going for fewer licensees, but again, it just seems to me
you've been a little bit stagnant, again the seasonality, but this is really... you guys have said
so many times, the infancy of Internet gaming, and I would've expected to see some growth.
Andrew Rivkin: Yeah... look. Again, as I said, we're far happier with our performance
in the third quarter of this year compared with the third quarter of the previous year. We've done a
better job of addressing the seasonality issue, and I think that no matter what, the winter months are
going to be better than the summer months with respect to our licensees' ability to get out there and
promote their brands and to have the... ultimately, the end user sitting in front of their computers
and playing.
So there was 57% growth year over year, and if you take a look at the scale of our revenue and earnings,
I think that 57% growth, CryptoLogic, a year ago, already significantly larger than Starnet was. It's very
significant, and there is really no comparison between the two companies.
Operator: Your next question is from Atul Sharma, private investor. Please proceed with your question.
Atul Sharma: Good morning, gentlemen. My question relates to your response about public
relations. You had said that you were in the process of interviewing public relations...
Jenny Solursh: We're right now interviewing several firms. It will be outsourced to a
company that can really handle it properly and has experience in dealing with TSX/NASDAQ companies and
Internet companies. We're hoping to sign someone on within the next month.
Atul Sharma: Wonderful. Can you tell me... one more question. Since Salomon Smith Barney
is sponsoring CryptoLogic's application to the NASDAQ, do you have any knowledge whether they'll be
providing analyst coverage of the stock?
Andrew Rivkin: I think that that still remains to be determined. That's really up to
their analyst. It's a bit of a different area with respect to being a market maker and sponsoring us
onto NASDAQ versus providing analyst coverage. So we're trying to build a relationship with Salomon,
that will help us all across the board, including analyst coverage. But there's no indication right now
that they will be providing coverage, writing research and providing analyst coverage at this stage.
Atul Sharma: Excellent. And one final question. Were parts of CryptoLogic's operations
moved to Antigua after the Starnet raid, and if so, could you further clarify the costs involved and what's where?
Andrew Rivkin: We have facilities in Antigua. We've had facilities in Antigua for
Internet gaming for the past three years now. We are building a facility in Antigua for Internet
commerce as well. That is to provide further redundancy for our Canadian electronic commerce operations,
and we really don't break the costs of the separate facilities down in our financials. They're... again,
I don't think that there's anything significant there. We've got three redundant gaming facilities for
our licensees... that our licensees can operate out of around the world, and two commerce facilities,
and the building of a facility in Antigua just makes a lot of sense with respect to providing redundancy
and the ability to operate continuously for our end users.
Atul Sharma: Thank you very much. Let me just say that I think I speak on behalf
of many shareholders in that I think the main reason that CryptoLogic's multiple is so low in our
minds, is that not enough people are aware of what a great company this is. And I think the public
relations firm, if chosen properly, will go a long way to getting people to know what a company this is.
Thank you very much for your time.
Andrew Rivkin: Thank you.
Mark Rivkin: Thank you.
Operator: Your next question is a follow-up from Phil Fine. Please proceed with your question.
Phil Fine: Yeah, Mr. Rivkin, if I can just get you to spell your last name. Is it R-I-V-K-I-N?
Andrew Rivkin: That's correct.
Phil Fine: And you're president of the company, is that right?
Andrew Rivkin: That's correct.
Phil Fine: And when you said you wanted to... you hoped that the NASDAQ listing would
raise your company's PE multiple to that of other Internet software first in the United States, what
is your PE multiple now, and to what do you wish to raise it?
Andrew Rivkin: Again I think I probably answered that question, but our PE today is
about 8. I can't tell you what I think the net result will be. I hope that it'll be better than 8,
as a result of the increased access to the US capital markets. So I think that it'll be better. How
better it is, I don't know.
Phil Fine: But that means your price of your share price is trading at eight times
your earnings - earnings per share?
Andrew Rivkin: That's correct. About eight times trailing earnings. In that neighbourhood.
Obviously, it fluctuates, as the share price fluctuates. But it's been around eight times trailing earnings.
Phil Fine: Okay, when you say trailing earnings, that means, let's say, earnings for the
past few quarters, then?
Andrew Rivkin: That's right.
Phil Fine: Okay, thank you.
Operator: Your next question is a follow-up from Reid Jenner. Please proceed with your question.
Reid Jenner: Yes, I wanted to follow up on a comment earlier about the thin
trading volumes. I wonder if you can share what the float is? That is, how many shares issued
are held outside... by people outside the company?
Andrew Rivkin: I believe the float... now again, there's... this is... if you
take a look at our analyst report, and the analyst who's following Crypto is Brandon Osten from Sprott
Securities. He has done an analysis, and he has, in that research report, determined what the float is.
My belief is that it's about six million shares out of 8.6 million. So technically, there's a very large
float. I think the company's been held for the most part from its initial investors, and they continue
to hold the stock so, although, technically, the float is very large, the reality is that it's probably
not quite as large as... a lot of these shares that were purchased in the early financing, in the early
days of CryptoLogic are still being held by the people who purchased them in the beginning.
Reid Jenner: Alright. Thank you.
Operator: Your next question is a follow-up from Jason Keogh. Please proceed with your question.
Jason Keogh: Yeah, hi again. Do you have any plans on listing other stock exchanges around the world?
Andrew Rivkin: We have no present plans. We have looked at the Australian stock exchange.
We have looked at the London stock exchange, but there are no present plans to list on either of those exchanges.
Jason Keogh: Okay, thank you.
Operator: There are no further questions at this time. I will turn the call back to you, sir.
Andrew Rivkin: Thank you. Once again, I'd just like to thank everybody for joining us.
Hope to hear from everybody again at the release of our fourth quarter results, and hopefully, we'll have
as exciting news and results to share with you at the end of the fourth quarter. Thanks once again.
Operator: Ladies and gentlemen, that does conclude your conference call for today.
You may disconnect your lines, and thank you for participating.
End of the Conference Call |
