Optimal Group Inc. (NASDAQ: OPMR) today announced its financial
results for the year-ended December 31, 2008. All references are in
U.S. dollars.
Year-end 2008 results
Revenues for the year-ended December 31, 2008 were $152.5
million compared to $84.9 million for the year-ended December 31,
2007. In the fourth quarter of 2008, the Company sold substantially
all of the payment processing assets that were used exclusively in
the business of processing payments for "card-not-present"
transactions. The results of operations for this business are
included in discontinued operations in the consolidated statements
of operations and the remaining assets and liabilities of the
Company's payment processing business segment are classified as
discontinued in the consolidated balance sheet.
EBITDA for the year-ended December 31, 2008 was $(10.7) million
or $(0.41) per diluted share compared to EBITDA of $1.8 million or
$0.08 per diluted share for the comparable period in 2007.
EBITDA is a non-GAAP (generally accepted accounting principles)
financial measure calculated as earnings before investment income,
taxes and depreciation and amortization and excludes the impact of
impairment losses, stock-based compensation and discontinued
operations. A reconciliation of Optimal's EBITDA is included in
Annex A.
Net loss for the year-ended December 31, 2008 was $111.0 million
or $(4.29) per share. A significant part of the net loss includes:
goodwill and other intangible impairment losses of $66.9 million,
amortization of other intangibles of $18.5 million, and loss from
discontinued operations of $12.0 million, net of income taxes. This
is compared to a net loss for the year-ended December 31, 2007 of
$36.5 million or $(1.51) per share which included: amortization of
intangibles of $12.7 million and a loss of $31.0 million from
discontinued operations, net of income tax.
Due largely to a general deterioration of the economic
environment, sales, operating profits and cash flows in the
consumer robotic, toy and entertainment products segment were lower
than expected in 2008. The Company tested the consumer robotic, toy
and entertainment segment for impairment at September 30, 2008 and
December 31, 2008. The Company revised its forecast for the next
five years to reflect lower growth expectations for this segment.
At December 31, 2008, the Company recognized a goodwill impairment
loss of $41.4 million and an impairment loss of $2.4 million
nonamortizable intangibles for this segment.
At June 30, 2008, the Company tested goodwill for impairment in
the payment processing segment as the Company determined that there
was a more likely than not expectation that a significant portion,
or this entire segment, could be sold over the course of the
following 12 months. As a result, the Company recorded a goodwill
impairment loss of $10.8 million in the second quarter of 2008.
At December 31, 2008, the Company tested the remaining other
intangibles held in the payment processing segment for impairment,
as the Company determined that there was a more likely than not
expectation that a significant portion of these other intangibles
would be sold over the course of the next twelve months. As a
result of this analysis, the Company recorded other intangible
impairment losses of $12.2 million at December 31, 2008 based on
the estimated fair value to be realized as proceeds from these
transactions.
Goodwill, other intangible impairment losses and amortization of
other intangibles do not result in any cash expenditures and do not
affect the Company's cash position, cash flow from operating
activities or availability under any of its credit facilities.
The downturn in the global economy has had a significant effect
on the toy industry and all wholesalers that operate in that
segment, including the Company's principal operating subsidiary,
WowWee. Consumer confidence reached an all-time low in December
2008, driving retail sales weakness in the fourth quarter and
holiday season as consumers, fearful of the economy's direction,
significantly reduced discretionary spending. The Company
anticipates that the unfavourable economic conditions experienced
in 2008 will continue into 2009. Optimal expects revenues to be
under pressure in 2009 as a result of retail softness driven by a
continued pull-back in consumers' willingness to spend and
retailers' desire to reduce inventories, weakening foreign exchange
in international markets, and the sale of fewer
entertainment-related products in 2009. As a result, Optimal
intends to manage its business based on reduced revenue assumptions
and to continue to take actions intended to improve profitability
and strengthen the Company's balance sheet. In that regard, the
Company continues to focus on margins and the preservation of cash
in 2009. Optimal plans to tightly manage its inventories, capital
expenditures and other spending activity in 2009.
U.S. Gaming Payment Processing
As previously announced, following announcements by the U.S.
Attorney's Office in the Southern District of New York relating to
its investigation of the U.S. Internet gambling industry, the
Company, in March 2007, initiated discussions with the U.S
Attorney's Office and is in the process of responding to a
voluntary request for information issued by the U.S Attorney's
Office. The Company is not in a position to determine when these
discussions will conclude nor the likely outcome of these
discussions.
Cancellation of Outstanding Options
The Company announces that the Board of Directors has approved
the cancellation of all options outstanding under the Company's
stock option plan. Options to acquire an aggregate of 1,531,000
Class "A" shares of the Company at $4.21 per share, and 3,646,356
Class "A" shares of the Company at $7.10 per share are currently
outstanding. The cancellation of any outstanding options and the
forfeiture of the option holder's rights there under are subject
to, and will become effective only once the option holder has
consented to such cancellation.
About Optimal Group
Optimal Group Inc. has operated and, through various
subsidiaries, has actively managed a variety of businesses.
Optimal Group Inc. currently operates:
The WowWee group of companies, with operations in Hong Kong,
Carlsbad, California, Brussels, Belgium and Montreal, Quebec.
WowWee Group Limited, based in Hong Kong, is a leading designer,
developer, marketer and distributor of technology-based consumer
robotic, toy and entertainment products.
Optimal Payments Corp., which processes credit card payments,
primarily for small and medium-sized retail point-of-sale
merchants.
For more information about Optimal, please visit the Company's
website at www.optimalgrp.com.
Cautionary Statements Regarding Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Words such as
"expects", "intends", "anticipates", "plans", "believes", "seeks",
"estimates", or variations of such words and similar expressions
are intended to identify such forward-looking statements.
Forward-looking statements include, but are not limited to,
statements about our current expectations with respect to our
future growth strategies, results, opportunities and prospects,
competitive position and industry environment. These
forward-looking statements are subject to a number of risks,
uncertainties and other factors that could cause our actual
results, performance, prospects or opportunities, or those of the
markets we serve, to differ materially from those expressed in, or
implied by, these forward-looking statements, including:
- existing and future governmental regulations and disputes with
governmental authorities;
- general economic, legal and business conditions in the markets
we serve;
- our ability to continue to satisfy Nasdaq's conditions for
continued listing of our common shares on The NASDAQ Global
Market;
- consumer confidence in the security of financial information
transmitted via the Internet;
- levels of consumer and merchant fraud, disputes between
consumers and merchants and merchant insolvency;
- liability for merchant chargebacks;
- our ability to safeguard against breaches of privacy and
security when processing electronic transactions and use of our
payments systems for illegal purposes;
- the imposition of and our compliance with rules and practice
procedures implemented by credit card associations;
- our ability to protect our intellectual property;
- our relationships with our suppliers and the banking
associations that we rely upon to process our electronic
transactions;
- disruptions in the function of our electronic payments systems
and technological defects;
- our ability to complete, integrate and benefit from
acquisitions, divestitures, joint ventures and strategic
alliances;
- our ability to retain key personnel;
- currency exchange rate fluctuations;
- while we believe that our cash, cash equivalents and
short-term investments will be adequate to meet our operating needs
for at least the next 12 months, our existing cash, cash
equivalents and short-term investments could prove to be inadequate
to meet our funding requirements;
- our ability to successfully implement our strategies for our
recently acquired WowWee business;
- changing consumer preferences for electronics and play
products;
- the seasonality of retail sales;
- concentration among our major retail customers for the
products of our WowWee business;
- economic, social and political conditions in China, where
WowWee's products are manufactured;
- the price and supply of raw materials used to manufacture
WowWee's products;
- product liability claims and product recalls;
- increased competition;
- litigation; and
- the factors described under Item 1A. "Risk Factors" in our
Annual Report on Form 10-K for the year ended December 31, 2008
There may be additional risks and uncertainties and other
factors that we do not currently view as material or that are not
necessarily known. The forward looking statements made in this
document are only made as of the date of this document.
Except as required by applicable securities laws, we undertake
no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events,
changes in circumstances or any other reason after the date of this
press release.
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies without
fear of litigation. We are relying on the "safe harbor" provisions
of the Private Securities Litigation Reform Act in connection with
the forward-looking statements included in this press release.
Consolidated Balance Sheets, Statements of Operations and
Statements of Cash Flows follow:
OPTIMAL GROUP INC.
Consolidated Balance Sheets
December 31, 2008 and 2007
(expressed in thousands of U.S. dollars)
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2008 2007
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Assets
Current assets:
Cash and cash equivalents $32,849 $47,193
Short-term investments 6,296 12,477
Accounts and other receivables 25,050 17,175
Inventories 19,439 3,088
Income taxes receivable 302 2,970
Prepaid expenses and other assets 2,040 2,531
Future income taxes - 714
Currents assets related to
discontinued operations 2,877 15,273
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88,853 101,421
Property and equipment 4,299 3,789
Intangible assets 56,683 85,064
Goodwill - 47,931
Future income taxes - 6,200
Long-term assets related to discontinued
operations 19,183 45,876
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$169,018 $290,281
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Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $11,547 $-
Accounts payable and accrued liabilities 38,947 33,908
Income taxes payable 1,370 4,484
Future income taxes 838 1,270
Current liabilities related to discontinued
operations 2,984 26,395
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55,686 66,057
Future income taxes 6,965 11,648
Long-term debt 2,005 -
Long-term liabilities related to discontinued
operations 10,871 10,871
Shareholders' equity:
Share capital 210,032 211,998
Warrants 2,696 2,696
Additional paid-in capital 34,316 29,561
Deficit (152,069) (41,066)
Accumulated other comprehensive loss (1,484) (1,484)
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93,491 201,705
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$169,018 $290,281
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OPTIMAL GROUP INC.
Consolidated Statements of Operations and Comprehensive (Loss) Income
Three-year period ended December 31, 2008
(expressed in thousands of U.S. dollars, except share and per share amounts)
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2008 2007 2006
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Revenues $152,546 $84,908 $81,786
Expenses:
Cost of sales and transaction
processing, excluding
amortization 109,131 61,520 57,991
Amortization of intangibles
pertaining to cost of sales
and transaction processing 18,494 12,690 10,280
Amortization of equipment
pertaining to cost of sales 3,623 581 -
Selling, general and
administrative, excluding
amortization and stock
based compensation 49,792 20,308 22,802
Amortization of equipment
pertaining to selling, general
and administrative 709 235 161
Stock-based compensation
pertaining to selling, general
and administrative 3,339 276 -
Research and development 2,931 731 -
Operating leases 1,358 501 583
Impairment losses 66,910 -- -
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256,287 96,842 91,817
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Loss from continuing operations
before undernoted items (103,741) (11,934) (10,031)
Investment income 1,238 5,831 8,388
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Loss from continuing operations
before income taxes (102,503) (6,103) (1,643)
Income tax recovery 3,500 618 -
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Net loss from continuing
operations (99,003) (5,485) (1,643)
Net (loss) earnings from
discontinued operations, net of
income taxes (12,000) (31,026) 14,422
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Net (loss) earnings and
comprehensive (loss) income $(111,003) $(36,511) $12,779
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Weighted average number of shares:
Basic 25,860,128 24,179,134 23,628,604
Plus impact of stock options
and warrants - - 1,810,527
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Diluted 25,860,128 24,179,134 25,439,131
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(Loss) earnings per share:
Continuing operations:
Basic $(3.83) $(0.23) $(0.07)
Diluted (3.83) (0.23) (0.07)
Discontinued operations:
Basic (0.46) (1.28) 0.61
Diluted (0.46) (1.28) 0.57
Net:
Basic (4.29) (1.51) 0.54
Diluted (4.29) (1.51) 0.50
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OPTIMAL GROUP INC.
Consolidated Statements of Cash Flows
Three-year period ended December 31, 2008
(expressed in thousands of U.S. dollars)
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2008 2007 2006
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Cash flows (used in) from operating
activities:
Net (loss) earnings $(111,003) $(36,511) $12,779
Add (deduct): loss (earnings) from
discontinued operations 12,000 31,026 (14,422)
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Net loss from continuing operations (99,003) (5,485) (1,643)
Adjustments for items not affecting
cash:
Amortization 22,826 13,506 10,441
Future income taxes (3,526) (148) -
Stock-based compensation 3,339 276 -
Foreign exchange 415 (333) (390)
Impairment losses 66,910 - -
Net change in operating assets and
liabilities (15,521) (3,489) (1,633)
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(24,560) 4,327 6,775
Operating cash flows (used in) from
discontinued operations 1,351 (41,616) (6,572)
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(23,209) (37,289) 203
Cash flows (used in) from financing
activities:
Increase (decrease) in bank
indebtedness 6,156 (8,581) 159
Repayment of long-term debt (79) - -
Repurchase of Class "A" shares (550) (206) (2,264)
Proceeds from issuance of Class "A"
shares - 87 5,172
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5,527 (8,700) 3,067
Financing cash flows from (used in)
discontinued operations - 58 (4,772)
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5,527 (8,642) (1,705)
Cash flows (used in) from investing
activities:
Acquisition of WowWee, net of cash
of $483 - (46,087) -
Other business acquisitions (6,557) - -
Purchase of property, equipment and
intangible assets (4,780) (4,441) (2,198)
Net proceeds from maturity of
short-term investments 6,181 59,144 10,740
Proceeds from sale of property and
equipment 1,834 - -
Proceeds from disposition of payment
processing businesses 8,500 - --
Transaction costs related to business
acquisitions and disposals (583) (1,155) -
4,595 7,461 8,542
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Investing cash flows used in
discontinued operations (361) (18,609) (1,777)
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4,234 (11,148) 6,765
Effect of exchange rate changes on cash
and cash equivalents during the year (896) 350 423
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Net (decrease) increase in cash and
cash equivalents (14,344) (56,729) 5,686
Cash and cash equivalents, beginning of
year 47,193 103,922 98,236
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Cash and cash equivalents, end of year $32,849 $47,193 $103,922
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Annex A
Non-GAAP Financial Measures
We are using a non-GAAP (generally accepted accounting
principles) measure to assess our operating performance. Earnings
and other measures adjusted to a basis other than GAAP do not have
standardized meanings and are unlikely to be comparable to similar
measures used by other companies. Accordingly, they should not be
considered in isolation. We are using EBITDA to measure the
Company's performance, which measure excludes certain items from
earnings that Optimal management does not stress in assessing the
Company's operating performance and financial condition. We also
believe this measure is routinely used by investors and analysts as
a basis for assessing company value.
EBITDA, as used by Optimal, is calculated as earnings before
investment income, taxes and depreciation and amortization and
excludes the impacts of impairment loss, stock-based compensation
and discontinued operations. We believe it is useful to exclude
these items as they are either non-cash expenses, items that cannot
be influenced by management in the short term, or items that do not
impact core operating performance. Excluding these items does not
imply they are necessarily non-recurring.
OPTIMAL GROUP INC.
Reconciliation of Non-GAAP Financial Information
EBITDA
(expressed in thousands of U.S. dollars, except per share amounts)
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Twelve months ended
December 31,
2008 2007
Unaudited Unaudited
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Net (loss) earnings $(111,003) $(36,511)
Add (deduct):
Impairment loss 66,910 -
Amortization of intangibles pertaining to cost
of sales and transaction processing 18,494 12,690
Amortization of property and equipment
pertaining to cost of sales 3,623 581
Amortization of property and equipment
pertaining to selling, general and
administrative 709 235
Stock-based compensation pertaining to
selling, general and administrative 3,339 276
Investment income (1,238) (5,831)
Income tax recovery (3,500) (618)
Loss from discontinued operations 12,000 31,026
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EBITDA $(10,666) $1,848
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Diluted shares (in 000's) 25,860 24,179
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EBITDA per diluted share $(0.41) $0.08
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Contacts: Optimal Group Inc. Brad McKenna Vice-President,
Adminstration 514-738-8885 bradir@optimalgrp.com
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