EX-99 3 press_release.htm PRESS RELEASE


 

 

FOR IMMEDIATE RELEASE

PRESS RELEASE        

       

Optimal Group Announces Second Quarter 2007 Results

 

 

Montreal, Quebec, August 7, 2007—Optimal Group Inc. (NASDAQ:OPMR) today announced its financial results for the second quarter ended June 30, 2007. All references are in U.S. dollars.

 

Revenues for the second quarter ended June 30, 2007 were $28.0 million compared to $52.2 million for the second quarter ended June 30, 2006.

 

Adjusted earnings for the second quarter were $4.3 million or $0.18 per diluted share compared to $9.8 million or $0.38 per diluted share for the comparable period in 2006.

 

Adjusted earnings is a non-GAAP (generally accepted accounting principles) financial measure that excludes foreign exchange gains and losses, discontinued operations, impairment losses, restructuring costs, stock-based compensation and amortization of intangibles pertaining to transaction processing. A reconciliation of Optimal's adjusted earnings is included in Annex A to the Company's consolidated financial statements attached below.

 

Net earnings in the second quarter ended June 30, 2007 were $1.2 million or $0.05 per diluted share compared to net earnings of $3.7 million or $0.14 per diluted share in the second quarter ended June 30, 2006.

 

As previously announced, immediately following the enactment of the Unlawful Internet Gambling Enforcement Act of 2006 (the “Act”) on October 13, 2006, the Company’s then majority-owned subsidiary, FireOne Group plc, ceased to process settlement transactions originating from United States consumers. The passage of the Act had and will continue to have for at least the short term, a significant negative impact on the financial results of FireOne Group (now known as Optimal Payments (Ireland) Limited), and hence the Company. The foregoing statements should be considered in this context.

 

 

 

Optimal Group Announces Second Quarter 2007 Results

Page 2

 

Optimal's consolidated balance sheet remains strong. At June 30, 2007, the Company had:

 

 

Ø

cash and cash equivalents, restricted cash, short-term investments (including amounts held in reserve) and settlement assets, net of customer reserves and security deposits, of $116.6 million, or $4.89 per issued and outstanding share;

 

Ø

working capital, excluding cash and short-term investments held as reserves and restricted cash, of $72.9 million; and

 

Ø

shareholders' equity of $221.0 million, or $9.26 per issued and outstanding share.

 

Use of Adjusted Earnings per Diluted Share

 

In addition to the financial measures prepared in accordance with GAAP, Optimal uses certain non-GAAP financial measures, including adjusted earnings per diluted share. Optimal believes that the inclusion of such measures helps investors to gain a better understanding of its core operating results and is consistent with how management measures the Company’s operational and financial performance, especially when comparing such results to previous periods.

 

Strategic Plan

 

Through our wholly-owned subsidiary, Optimal Payments Inc, we focus on providing secure electronic payment and risk management solutions to small and medium-sized businesses that sell and deliver goods and services over the Internet, wireless, or generally in a card-not-present environment.

 

At the same time, the Company is actively exploring strategic acquisition opportunities.

 

U.S. Gaming Payment Processing

 

As stated above, immediately following the enactment of the Act on October 13, 2006, the Company’s then majority-owned subsidiary, FireOne Group plc, ceased to process settlement transactions originating from United States consumers.

 

Following recent 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 has initiated discussions with the U.S. Attorney’s office in the Southern District of New York and is in the process of responding to a voluntary request for information issued by the U.S. Attorney’s office. In connection with such ongoing investigation, the Company announced on May 11, 2007 that it had received a copy of warrants of seizure issued by the U.S. Attorney’s Office against funds of certain payment processors that were on deposit with two U.S. banks. These funds included monies that were on deposit to the credit of Company subsidiaries of $19.2 million, which are presented as restricted cash on the Company’s consolidated balance sheet.

 

 

Optimal Group Announces Second Quarter 2007 Results

Page 3

 

About Optimal Group Inc.

 

Optimal Group Inc. is a payments company with operations primarily in North America and the United Kingdom. Through our wholly-owned subsidiary Optimal Payments, we process credit card payments for Internet businesses, mail-order/telephone-order and retail point-of-sale merchants, and process electronic checks and direct debits online and by phone.

 

For more information about Optimal, please visit the Company's website at www.optimalgrp.com.

 

David Schwartz

Optimal Group Inc.

(514) 380-2700

david@optimalpayments.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, 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;

• general economic and business conditions in the markets we serve;

• consumer confidence in the security of financial information transmitted via the Internet;

• levels of consumer fraud, disputes between consumers and merchants and merchant insolvency;

• our ability to safeguard against breaches of privacy and security when processing electronic transactions;

• the imposition of and our compliance with rules and practice procedures implemented by credit card and check clearing associations;

• our ability to adapt to changes in technology, including technology relating to electronic payments systems;

• 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; and

• the factors described under Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006.

 

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 Comprehensive Income (Loss) and Statements of Cash Flows follow:  

 

 

 

 

OPTIMAL GROUP INC.

 

 

 

 

Consolidated Balance Sheets

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

June 30, 2007 and December 31, 2006

 

 

 

 

(expressed in thousands of U.S. dollars)

 

 

 

 

 

 

 

 

 

 

June 30, 

December 31, 

 

 

2007 

 

2006 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

107,666 

$

103,922 

Restricted cash

 

19,182 

 

–   

Cash held as reserves

 

11,340 

 

18,960 

Short-term investments

 

–   

 

71,621 

Short-term investments held as reserves

 

2,410 

 

3,110 

Settlement assets

 

2,008 

 

7,061 

Accounts receivable

 

8,343 

 

5,600 

Income taxes receivable and refundable investment tax credits

 

1,457 

 

1,025 

Prepaid expenses

 

1,303 

 

2,625 

Future income taxes

 

2,096 

 

2,199 

 

 

 

155,805 

 

216,123 

Long-term receivables

 

1,394 

 

3,144 

Property and equipment

 

1,758 

 

2,121 

Goodwill and other intangible assets

 

102,877 

 

106,041 

Future income taxes

 

4,914 

 

4,183 

Other asset

 

10,186 

 

10,423 

 

 

 

 

 

 

$

276,934 

$

342,035 

Liabilities and Shareholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

Bank indebtedness

$

–   

$

8,581 

Customer reserves and security deposits

 

25,976 

 

61,897 

Accounts payable and accrued liabilities

 

17,641 

 

23,362 

Income taxes payable

 

5,989 

 

5,573 

Future income taxes

 

381 

 

382 

 

 

 

49,987 

 

99,795 

Non-controlling interest

 

–   

 

16,392 

Future income taxes

 

5,981 

 

6,466 

Shareholders' equity:

 

 

 

 

Share capital

 

202,359 

 

202,252 

Additional paid-in capital

 

29,141 

 

23,169 

Deficit

 

(9,050)

 

(4,555)

Accumulated other comprehensive loss

 

(1,484)

 

(1,484)

 

 

 

220,966 

 

219,382 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

276,934 

$

342,035 

 

 

 

 

 

 

OPTIMAL GROUP INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

Periods ended June 30, 2007 and 2006

(expressed in thousands of U.S. dollars, except per share amounts)

 

 

Three months ended June 30,

Six months ended June 30,

 

2007 

2006 

2007 

2006 

 

 

 

 

 

 

 

 

 

Revenues

$

28,042 

$

52,242 

$

58,108 

$

104,664 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Transaction processing

 

18,096 

 

24,545 

 

36,769 

 

50,053 

Selling, general and administrative

 

5,803 

 

14,550 

 

13,474 

 

26,519 

Amortization of intangibles pertaining to transaction processing

 

3,227 

 

3,050 

 

6,336 

 

6,065 

Amortization of property and equipment

 

316 

 

377 

 

650 

 

766 

Stock-based compensation pertaining to selling, general and administrative

 

30 

 

335 

 

6,027 

 

335 

Research and development

 

601 

 

825 

 

1,264 

 

1,630 

Operating leases

 

282 

 

384 

 

514 

 

752 

 

 

 

 

 

 

 

 

 

(Loss) earnings from continuing operations before undernoted item

 

(313)

 

8,176 

 

(6,926)

 

18,544 

 

 

 

 

 

 

 

 

 

Investment income

 

1,576 

 

2,235 

 

3,477 

 

3,517 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before income tax provision and non-controlling interest

 

1,263 

 

10,411 

 

(3,449)

 

22,061 

 

 

 

 

 

 

 

 

 

Income tax provision

 

106 

 

1,852 

 

887 

 

4,323 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before non-controlling interest

 

1,157 

 

8,559 

 

(4,336)

 

17,738 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

-   

 

(2,037)

 

(159)

 

(4,157)

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

1,157 

 

6,522 

 

(4,495)

 

13,581 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

-   

 

(2,831)

 

-   

 

(5,501)

 

 

 

 

 

 

 

 

 

Net earnings (loss) and comprehensive income (loss)

$

1,157 

$

3,691 

$

(4,495)

$

8,080 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

Basic

 

23,854,507 

 

23,707,648 

 

23,853,710 

 

23,517,593 

Plus impact of stock options and warrants

 

542,407 

 

2,074,570 

 

617,135 

 

2,366,788 

 

 

 

 

 

 

 

 

 

Diluted

 

24,396,914 

 

25,782,218 

 

24,470,845 

 

25,884,381 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Continuing operations:

 

 

 

 

 

 

 

 

Basic

$

0.05 

$

0.28 

$

(0.19)

$

0.58 

Diluted

 

0.05 

 

0.25 

 

(0.19)

 

0.52 

Discontinued operations:

 

 

 

 

 

 

 

 

Basic

 

-   

 

(0.12)

 

-   

 

(0.24)

Diluted

 

-   

 

(0.11)

 

-   

 

(0.21)

Net:

 

 

 

 

 

 

 

 

Basic

 

0.05 

 

0.16 

 

(0.19)

 

0.34 

Diluted

 

0.05 

 

0.14 

 

(0.19)

 

0.31 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPTIMAL GROUP INC.

 

Consolidated Statements of Cash Flows

 

(Unaudited)

 

 

 

Periods ended June 30, 2007 and 2006

 

(expressed in thousands of U.S. dollars)

 

 

 

 

Three months ended June 30,

Six months ended June 30,

 

 

2007 

2006 

2007 

2006

 

 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) operating activities:

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

1,157 

$

3,691 

$

(4,495)

$

8,080 

 

 

Add: loss from discontinued operations

 

-   

 

2,831 

 

-   

 

5,501 

 

Net earnings (loss) from continuing operations

 

1,157 

 

6,522 

 

(4,495)

 

13,581 

 

 

 

 

 

 

 

 

 

 

 

Adjustments for items not affecting cash:

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

-   

 

2,037 

 

159 

 

4,157 

 

Amortization

 

3,543 

 

3,427 

 

6,986 

 

6,831 

 

Gain on settlement of litigation

 

(1,612)

 

-   

 

(1,612)

 

-   

 

Future income taxes

 

(421)

 

(1,988)

 

(997)

 

(2,541)

 

Stock-based compensation

 

30 

 

335 

 

6,027 

 

335 

 

Foreign exchange

 

(108)

 

(822)

 

(138)

 

(868)

 

Net change in operating assets and liabilities

 

(22,295)

 

(1,918)

 

(45,584)

 

(11,473)

 

 

 

 

(19,706)

 

7,593 

 

(39,654)

 

10,022 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from exercise of RSUs in FireOne

 

-   

 

15 

 

58 

 

21 

 

Proceeds from issuance of Class “A” shares

 

34 

 

217 

 

52 

 

4,047 

 

FireOne dividend paid

 

-   

 

(2,107)

 

-   

 

(2,107)

 

(Decrease) increase in bank indebtedness

 

-   

 

1,469 

 

(8,581)

 

938 

 

Repurchase of Class “A” shares

 

-   

 

(1,291)

 

-   

 

(2,264)

 

 

 

 

34 

 

(1,697)

 

(8,471)

 

635 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) investing activities:

 

 

 

 

 

 

 

 

 

Repurchase of FireOne ordinairy shares

 

-   

 

-   

 

(16,463)

 

-   

 

Transaction costs

 

(6)

 

-   

 

(1,748)

 

-   

 

Purchase of property, equipment and intangible assets

 

(976)

 

(625)

 

(2,058)

 

(1,698)

 

Proceeds from maturity of short-term investments

 

5,138 

 

14,425 

 

71,621 

 

34,248 

 

Decrease (increase) in long-term receivables

 

27 

 

(241)

 

362 

 

589 

 

 

 

 

4,183 

 

13,559 

 

51,714 

 

33,139 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents during the period

 

108 

 

344 

 

155 

 

402  

 

 

 

 

 

 

 

 

 

 

 

Cash flows of discontinued operations:

 

 

 

 

 

 

 

 

 

Operating cash flows

 

–   

 

(2,548)

 

–   

 

(3,261)

 

Investing cash flows

 

–   

 

(11)

 

–   

 

(82)

 

 

 

–   

 

(2,559)

 

–   

 

(3,343)

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(15,381)

 

17,240 

 

3,744 

 

40,855 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

123,047 

 

121,851 

 

103,922 

 

98,236 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

$

107,666 

$

139,091 

$

107,666 

$

139,091 

 

 

 

 

 

Annex A

 

Use of Non-GAAP Financial Information  

 

We supplement our reporting of net earnings (loss) determined in accordance with Canadian and U.S. GAAP by reporting "adjusted earnings" as a measure of earnings in this earnings release. In establishing this supplemental measure of earnings, we exclude foreign exchange gains and losses, discontinued operations, impairment losses, restructuring costs, stock-based compensation and amortization of intangibles pertaining to transaction processing from net earnings (loss) as management believes that foreign exchange gains and losses are largely uncontrollable by management and discontinued operations, impairment losses, restructuring costs, stock-based compensation and amortization of intangibles pertaining to transaction processing are not reflective of our core operations. Adjusted earnings for 2006 have been modified to exclude amortization of intangibles pertaining to transaction processing to be comparable with management’s current definition.

 

Management believes that adjusted earnings is useful to investors as a measure of our earnings because it is, for management, a primary measure of our performance, and provides a more meaningful reflection of our earnings.

 

Adjusted earnings does not have a standardized meaning under Canadian or U.S. GAAP and therefore should be considered in addition to, and not as a substitute for, earnings (loss) or any other amount determined in accordance with Canadian and U.S. GAAP. Our measure of adjusted earnings reflects management's judgment in regard to the impact of foreign exchange gains and losses, discontinued operations, impairment losses, restructuring costs, stock-based compensation and amortization of intangibles pertaining to transaction processing on our core operations, and may not be comparable to similarly titled measures reported by other companies.

 

 

OPTIMAL GROUP INC.

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Financial Information

 

 

 

 

 

 

 

 

(expressed in thousands of U.S. dollars, except per share amounts)

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

 

June 30,

 

 

2007

 

2006

 

 

2007

 

2006

 

 

unaudited

 

unaudited

 

 

unaudited

 

unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

1,157

$

3,691

 

$

(4,495)

$

8,080

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangibles pertaining to transaction processing, net of income tax recoveries of $88 for the three months ended June 30, 2007 (2006 - $146) and $176 for the six months ended June 30, 2007 (2006 - $296)

 

3,139

 

2,904

 

 

6,160 

 

5,769

Stock-based compensation pertaining to selling, general and administrative

 

30

 

335

 

 

6,027 

 

335

Loss from discontinued operations

 

-   

 

2,831

 

 

-   

 

5,501

 

 

 

 

 

 

 

 

 

 

Adjusted earnings

$

4,326

$

9,761

 

$

7,692 

$

19,685

 

 

 

 

 

 

 

 

 

 

Diluted shares

 

24,397

 

25,782

 

 

24,471

 

25,884

 

 

 

 

 

 

 

 

 

 

Adjusted earnings per diluted share

$

0.18

$

0.38

 

$

0.31 

$

0.76