Optimal Group Announces Third Quarter 2006 Results
---Renews Share Buyback---
Montreal, Quebec, November 6, 2006 – Optimal Group Inc. (NASDAQ:OPMR) today announced its financial results for the third quarter and nine months ended September 30, 2006. All references are in U.S. dollars.
On October 13, 2006, the Unlawful Internet Gambling Enforcement Act of 2006 (the "Act") was enacted. Concurrently, the Company's majority controlled subsidiary, FireOne Group plc, ceased to process settlement transactions originating from United States consumers that may be viewed as related to online gambling. As previously announced, this event will have a significant negative impact on the business and results of operations of FireOne Group, and therefore the Company. The following statements should be considered in this context.
Revenues for the third quarter ended September 30, 2006 were $53.3 million compared to $35.8 million in the third quarter ended September 30, 2005. Segmented disclosure is included in Annex A attached below.
Adjusted earnings for the third quarter were $11.3 million or $0.44 per diluted share (which includes an income tax recovery of $3.1 million, or $0.12 per diluted share) compared to $6.2 million or $0.24 per diluted share for the comparable period in 2005.
Adjusted earnings include the results of gaming transaction processing affected by the enactment of the Act.
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, gain on sale of interest in FireOne and stock-based compensation. A reconciliation of Optimal's adjusted earnings is included in Annex B to the Company's consolidated financial statements attached below.
As a result of the enactment of the Act, the Company recorded an impairment loss of $1.9 million.
Net earnings in the third quarter ended September 30, 2006 were $1.9 million or $0.08 per diluted share compared to net earnings of $0.5 million or $0.02 per diluted share in the third quarter ended September 30, 2005.
Revenues for the nine months ended September 30, 2006 were $158.0 million compared to $92.9 million in the nine months ended September 30, 2005. Segmented disclosure is included in Annex A attached below.
Adjusted earnings for the nine months ended September 30, 2006 were $25.7 million or $1.00 per diluted share compared to $11.9 million or $0.48 per diluted share for the comparable period in 2005.
Net earnings for the nine months ended September 30, 2006 was $10.0 million or $0.39 per diluted share, compared to net earnings of $21.2 million or $0.85 per diluted share, which included a gain on sale of an interest in FireOne of $1.22 per diluted share, for the nine months ended September 30, 2005.
Optimal's consolidated balance sheet remains strong. At September 30, 2006, the Company had:
- cash, cash equivalents, short-term investments (including amounts held in reserve) and settlement assets net of customer reserves, security deposits and bank indebtedness, of $130.9 million;
- working capital, excluding cash and short-term investments held as reserves, of $82.6 million; and
- shareholders' equity of $214.8 million.
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 future prospects and is consistent with how management measures and forecasts the Company's operational and financial performance, especially when comparing such results to previous periods.
Going Forward/Strategic Plan
The Company continues to focus on and refine its strategic plan, both operationally and as it relates to its corporate structure of the Optimal group of companies, following the recent passage of the Act.
Since entering the payments business in mid-2004, the Company has enjoyed significant organic growth in revenue and profitability.
Our majority-owned subsidiary, FireOne Group, built out a highly successful platform to process online gaming transactions through the use of credit and debit cards, electronic debit and a stored value e-wallet. However, the recent passage of the Act will have a material negative impact on the operations of FireOne Group and, as a result, on the Company. We are now pursuing strategic banking relationships with a view to growing our merchant base more rapidly and improving operating efficiencies as they relate to non-U.S. gaming and other processing verticals. We further intend to capitalize on the FireOne's flexible e-wallet payment processing platform, expanding the geographic scope of our offerings as well as providing multi-currency functionality.
Our Optimal Payments business segment presently processes credit card payments for small and medium sized internet businesses, mail-order/telephone-order merchants ("MOTO") and retail point-of-sale merchants, and processes electronic checks and direct debit online and by telephone. Over the past 18 months we have made significant investments in the infrastructure and assets of this segment in order to foster growth in our card-not-present payment processing volume.
We intend to pursue a strategy of establishing Optimal Payments as a leader in providing secure electronic payment and risk management solutions to businesses that sell and deliver goods and services over the Internet, wireless, or generally in a card-not-present environment. The Company's gateway and infrastructure presently provide strong support for the ability of online merchants and other e-commerce sites to accept credit cards and process electronic checks. As well, the Company believes that it has developed particular expertise in providing higher margin transaction processing services to businesses and merchants that are considered higher risk. As demonstrated by our previous successes in managing higher risk, online gaming processing transactions, we believe that Optimal Payments' risk management tools, such as they relate to fraud prevention, credit qualification and payment and transaction processing, as well as its marketing capabilities, should enable it to build a growing presence with small and medium-sized businesses in the online and other card-not-present marketplaces. We believe that additional opportunities exist in specific industry verticals, such as Internet-based financial services and stored value and peer-to-peer money transfers, and we intend to dedicate resources to establish a strong position in such markets.
At the same time, the Company is actively exploring opportunities that can be easily integrated into its existing operations, and which may offer high rates of return, when overlaid onto its existing payment processing operations. In that regard, the Company has particular interest in situations that can add scale and leverage to its online processing activities.
Renewal of Share Buyback Plan
Optimal's Board of Directors has approved a stock buyback program which authorizes the Company to purchase up to 1,100,000, or approximately 4.6% of the Class "A" shares outstanding as at October 31, 2006. By making such purchases, the number of Class "A" shares in circulation will be reduced and the proportionate share interest of all remaining holders of Class "A" shares will be increased on a pro rata basis.
Optimal may purchase the Class "A" shares on the open market through the facilities of the Nasdaq National Market from time to time over the course of 12 months commencing November 21, 2006 and ending on November 20, 2007. All shares purchased under the share repurchase program will be cancelled.
Financial Guidance
As a result of the enactment of the Act and the Board's ongoing strategic review, Optimal will suspend its practice of providing financial guidance on an interim basis. As the Company progresses on its business strategy and, as appropriate, the Company may reinstitute the practice of providing financial guidance.
Recent Events
On October 2, 2006, we announced the divesture of the Optimal Services Group hardware maintenance and services business segment.
On August 7, 2006, we announced the engagement of Genuity Capital Markets as financial advisor to assist our Board of Directors in considering strategic alternatives. Our strategic review is ongoing, however, we intend to utilize our strong balance sheet to build upon our existing assets and to pursue transactional opportunities, all with a view to creating future value.
Conference call
Optimal's conference call will be held on Tuesday, November 7, 2006 at 10:00 am (EST). It is the intent of Optimal's conference call to have the question and answer session limited to institutional analysts and investors. The call can be heard beginning at 10:00 am (EST) as an audio webcast via Optimal's website at www.optimalgrp.com. As well, Optimal invites retail brokers and individual investors to hear the conference call replay by dialing 514-861-2272 / 1-800-408-3053 access code 3200707 #. The replay may be heard beginning at 11:00 am (EST) on November 7, 2006 and will be available for five business days thereafter.
For more information about Optimal, please visit the Company's website at www.optimalgrp.com.
Gary Wechsler
Chief Financial Officer
Optimal Group Inc.
(514) 738-8885
gary@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, 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, 2005, our Quarterly Report on Form 10-Q for the three months ended June 30, 2006 and our Quarterly Report on Form 10-Q for the three months ended September 30, 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 Statements of Cash Flows follow:
OPTIMAL GROUP INC.
Consolidated Balance Sheets
(Unaudited)
September 30, 2006 and December 31, 2005
(expressed in thousands of U.S. dollars)
----------------------------------------------------------------------
September 30, December 31,
2006 2005
----------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 138,545 $ 98,236
Cash held as reserves 21,015 22,722
Short-term investments 56,110 82,361
Short-term investments held as reserves 4,510 3,014
Settlement assets 16,894 20,727
Accounts receivable 6,951 4,681
Income taxes receivable and refundable
investment tax credits 1,056 1,055
Prepaid expenses and deposits 1,568 1,006
Future income taxes 2,262 2,349
Current assets related to discontinued
operations 1,534 10,944
----------------------------------------------------------------------
250,445 247,095
Long-term receivables 3,204 3,528
Property and equipment 2,454 2,660
Goodwill and other intangible assets) 107,632 117,090
Other asset 10,423 10,462
Long-term assets related to discontinued
operations - 3,848
----------------------------------------------------------------------
$ 374,158 $ 384,683
----------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 7,324 $ 8,390
Customer reserves and security deposits 98,831 112,422
Accounts payable and accrued liabilities 24,303 21,796
Income taxes payable 9,380 9,003
Future income taxes 382 836
Current liabilities related to
discontinued operations 2,085 7,062
----------------------------------------------------------------------
142,305 159,509
Non-controlling interest 14,975 12,926
Future income taxes 2,044 8,958
Shareholders' equity:
Share capital 200,465 195,149
Additional paid-in capital 23,161 25,884
Deficit (7,308) (16,259)
Cumulative translation adjustment (1,484) (1,484)
----------------------------------------------------------------------
214,834 203,290
Contingencies and other
----------------------------------------------------------------------
$ 374,158 $ 384,683
----------------------------------------------------------------------
OPTIMAL GROUP INC.
Consolidated Statements of Operations
(Unaudited)
Periods ended September 30, 2006 and 2005
(expressed in thousands of U.S. dollars, except per share amounts)
----------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------
2006 2005 2006 2005
----------------------------------------------------------------------
Revenues $ 53,297 $ 35,754 $ 157,961 $ 92,870
Expenses:
Transaction
processing 26,353 15,184 76,406 41,390
Selling, general and
administrative 15,014 9,203 41,533 23,811
Amortization of
intangibles
pertaining to
transaction
processing 3,090 2,338 9,155 4,845
Amortization of
property and
equipment 389 270 1,155 978
Stock-based
compensation
pertaining to
selling, general and
administrative 671 3,211 1,006 7,318
Research and
development 849 578 2,479 1,850
Operating leases 409 372 1,161 877
Impairment loss 1,910 - 1,910 -
----------------------------------------------------------------------
Earnings from
continuing operations
before undernoted
items 4,612 4,598 23,156 11,801
Investment income 2,369 847 5,886 1,678
Gain on sale of
interest in FireOne - (167) - 30,411
----------------------------------------------------------------------
Earnings from
continuing operations
before income tax
provision and non-
controlling interest 6,981 5,278 29,042 43,890
Income tax (recovery)
provision (3,098) 1,424 1,225 7,721
----------------------------------------------------------------------
Earnings from
continuing operations
before non-
controlling interest 10,079 3,854 27,817 36,169
Non-controlling
interest 1,361 1,508 5,518 1,738
----------------------------------------------------------------------
Earnings from
continuing operations 8,718 2,346 22,299 34,431
Loss from discontinued
operations (2,489) (1,879) (7,990) (13,211)
Loss on disposal of
discontinued
operations (4,283) - (4,283) -
----------------------------------------------------------------------
Net earnings $ 1,946 $ 467 $ 10,026 $ 21,220
----------------------------------------------------------------------
Weighted average
number of shares:
Basic 23,687,171 23,044,050 23,574,945 22,751,982
Plus impact of stock
options and warrants 1,871,072 2,595,454 2,201,549 2,260,674
----------------------------------------------------------------------
Diluted 25,558,243 25,639,504 25,776,494 25,012,656
----------------------------------------------------------------------
Earnings (loss) per
share:
Continuing
operations:
Basic $ 0.37 $ 0.10 $ 0.95 $ 1.51
Diluted 0.34 0.09 0.87 1.38
Discontinued
operations:
Basic (0.29) (0.08) (0.52) (0.58)
Diluted (0.26) (0.07) (0.48) (0.53)
Net:
Basic 0.08 0.02 0.43 0.93
Diluted 0.08 0.02 0.39 0.85
OPTIMAL GROUP INC.
Consolidated Statements of Cash Flows
(Unaudited)
Periods ended September 30, 2006 and 2005
(expressed in thousands of U.S. dollars)
----------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
2006 2005 2006 2005
--------------------------------------------------- ------------------
Cash flows from (used in)
operating activities:
Net earnings $ 1,946 $ 467 $ 10,026 $ 21,220
Add: loss from discontinued
operations 2,489 1,879 7,990 13,211
loss on disposal of
discontinued
operations 4,283 - 4,283 -
--------------------------------------------------- ------------------
Net earnings from continuing
operations 8,718 2,346 22,299 34,431
Adjustments for items not
affecting cash:
Non-controlling interest 1,361 1,508 5,518 1,738
Gain on sale of interest in
FireOne - 167 - (30,411)
Amortization 3,479 2,608 10,310 5,823
Future income taxes (4,959) 307 (7,500) 1,566
Impairment loss 1,910 - 1,910 -
Stock-based compensation 671 3,211 1,006 7,318
Foreign exchange 145 74 (723) 567
Net change in operating assets
and liabilities 2,436 22,038 (9,037) 25,334
--------------------------------------------------- ------------------
13,761 32,259 23,783 46,366
Cash flows from (used in)
financing activities:
Proceeds on exercise of RSUs in
FireOne Group Plc 3 - 24 -
FireOne Group Plc dividends
paid to minority interest (2,689) - (4,796) -
Proceeds from issuance of Class
"A" shares 31 1,741 4,078 6,702
Repurchase of Class "A" shares - - (2,264) -
(Decrease) increase in bank
indebtedness (1,657) 50 (719) (2,195)
--------------------------------------------------- ------------------
(4,312) 1,791 (3,677) 4,507
Cash flows from (used in)
investing activities:
Proceeds on sale of interest in
FireOne - - - 44,146
Purchase of property, equipment
and intangible assets (859) (622) (2,557) (1,425)
(Aquisition of) proceeds from
maturity of short-term
investments (7,997) 143 26,251 60,205
(Increase) decrease of from note
receivable (265) (61) 324 76
Decrease in cash held in escrow - 816 - 3,536
Acquisition of MCA, including
acquisition costs of $49 - (1,020) - (3,709)
Payment of balance of sale of NPS - (1,500) - (3,000)
Acquisition of UBC, including
acquisition costs of $277 - - - (44,277)
Transactions costs - (1,491) - (5,918)
--------------------------------------------------- ------------------
(9,121) (3,735) 24,018 49,634
Effect of exchange rate changes
on cash and cash equivalents
during the period (25) 264 377 (404)
Cash flows of discontinued
operations
Operating cash flows (802) (2,240) (3,998) (5,823)
Financing cash flows (42) - (107) (470)
Investing cash flows (5) (81) (87) (790)
--------------------------------------------------- ------------------
(849) (2,321) (4,192) (7,083)
--------------------------------------------------- ------------------
Net (decrease) increase in cash
and cash equivalents (546) 28,258 40,309 93,020
Cash and cash equivalents,
beginning of period 139,091 127,699 98,236 62,937
--------------------------------------------------- ------------------
Cash and cash equivalents, end of
period $138,545 $155,957 $138,545 $155,957
--------------------------------------------------- ------------------
Annex A
Segmented Disclosure
The Company now operates in two segments, namely gaming and
non-gaming payment processing services. In 2005, the Company operated
in three segments that included hardware maintenance and repair
outsourcing services. The net results of this segment are reported as
discontinued operations. Comparative figures have been reclassified to
conform with this new presentation. Transaction processing costs,
administrative expenses and other fees charged among the segments are
in the normal course of operations and are measured at the exchange
amount, which is the amount of consideration established and agreed to
by the parties. Management measures the results of operations based on
segment income before income taxes adjusted for certain non-cash and
non-recurring items provided by each business segment.
On October 13, 2006, the Company ceased processing settlement
transactions originating from the United States' consumers that may be
viewed as related to online gambling, which represented approximately
83% and 84% of the Company's total gaming payment processing services
segment revenue for the three and nine months ended September 30,
2006, respectively.
(a) Information on the operating segments is as follows:
Payment
services Eliminations/
Gaming Non- Unallocated Consolidated
gaming
----------------------------------------------------------------------
Three months ended September 30, 2006:
----------------------------------------------------------------------
Revenues $26,204 $29,290 $ (2,197)$ 53,297
Transaction processing 10,317 17,029 (993) 26,353
Selling, general and
administrative 8,668 7,620 (1,274) 15,014
Research and development 135 714 - 849
Operating leases 88 321 - 409
----------------------------------------------------------------------
6,996 3,606 70 10,672
Stock-based compensation 427 244 - 671
Impairment loss 1,910 - 1,910
Amortization 268 3,208 3 3,479
----------------------------------------------------------------------
4,391 154 67 4,612
Investment income 1,343 1,026 - 2,369
----------------------------------------------------------------------
Earnings from continuing
operations before income
taxes and non-controlling
interest 5,734 1,180 67 6,981
Income tax provision
(recovery) 922 (4,020) - (3,098)
----------------------------------------------------------------------
Earnings from continuing
operations before undernoted 4,812 5,200 67 10,079
Non-controlling interest 1,361 - - 1,361
----------------------------------------------------------------------
Earnings from continuing
operations 3,451 5,200 67 8,718
Loss from discontinued
operations (including
restructuring of $1,031) - - (2,489) (2,489)
Loss on disposal of
discontinued operations - - (4,283) (4,283)
----------------------------------------------------------------------
Net earnings (loss) $ 3,451 $ 5,200 $ (6,705)$ 1,946
----------------------------------------------------------------------
Payment
services Eliminations/
Gaming Non- Unallocated Consolidated
gaming
----------------------------------------------------------------------
Three months ended September 30, 2005:
----------------------------------------------------------------------
Revenues $19,968 $17,768 $ (1,982)$ 35,754
Transaction processing 8,001 8,103 (920) 15,184
Selling, general and
administrative 3,330 6,935 (1,062) 9,203
Research and development 83 495 - 578
Operating leases 73 299 - 372
----------------------------------------------------------------------
8,481 1,936 - 10,417
Stock-based compensation 929 2,282 - 3,211
Amortization 235 2,373 - 2,608
----------------------------------------------------------------------
7,317 (2,719) - 4,598
Investment income 51 796 - 847
----------------------------------------------------------------------
Earnings (loss) from
continuing operations before
income taxes and non-
controlling interest 7,368 (1,923) - 5,445
Income tax provision
(recovery) 2,696 (1,272) - 1,424
----------------------------------------------------------------------
Earnings (loss) from
continuing operations before
undernoted 4,672 (651) - 4,021
Sale of interest in FireOne - - 167 167
Non-controlling interest 1,508 - - 1,508
----------------------------------------------------------------------
Earnings (loss) from
continuing operations 3,164 (651) (167) 2,346
Loss from discontinued
operations - - (1,879) (1,879)
----------------------------------------------------------------------
Net earnings (loss) $ 3,164 $ (651)$ (2,046)$ 467
----------------------------------------------------------------------
Payment
services Eliminations/
Gaming Non- Unallocated Consolidated
gaming
----------------------------------------------------------------------
Nine months ended September 30, 2006:
----------------------------------------------------------------------
Revenues $76,193 $88,409 $ (6,641)$ 157,961
Transaction processing 27,359 52,073 (3,026) 76,406
Selling, general and
administrative 20,826 24,535 (3,828) 41,533
Research and development 426 2,053 - 2,479
Operating leases 223 938 - 1,161
----------------------------------------------------------------------
27,359 8,810 213 36,382
Stock-based compensation 641 365 - 1,006
Impairment loss 1,910 - - 1,910
Amortization 801 9,501 8 10,310
----------------------------------------------------------------------
24,007 (1,056) 205 23,156
Investment income 3,464 2,422 - 5,886
----------------------------------------------------------------------
Earnings from continuing
operations before income
taxes and non-controlling
interest 27,471 1,366 205 29,042
Income tax provision
(recovery) 4,963 (3,896) 158 1,225
----------------------------------------------------------------------
Earnings from continuing
operations before undernoted 22,508 5,262 47 27,817
Non-controlling interest 5,518 - - 5,518
----------------------------------------------------------------------
Earnings from continuing
operations 16,990 5,262 47 22,299
Loss from discontinued
operations (including
restructuring of $3,414) - - (7,990) (7,990)
Loss on disposal of
discontinued oeprations - - (4,283) (4,283)
----------------------------------------------------------------------
Net earnings (loss) $16,990 $ 5,262 $ (12,226)$ 10,026
----------------------------------------------------------------------
Payment
services Eliminations/
Gaming Non- Unallocated Consolidated
gaming
----------------------------------------------------------------------
Nine months ended September 30, 2005:
----------------------------------------------------------------------
Revenues $52,442 $44,607 $ (4,179)$ 92,870
Transaction processing 21,502 22,441 (2,553) 41,390
Selling, general and
administrative 8,029 17,408 (1,626) 23,811
Research and development 993 857 - 1,850
Operating leases 241 636 - 877
----------------------------------------------------------------------
21,677 3,265 - 24,942
Stock-based compensation 1,595 5,723 - 7,318
Amortization 719 5,104 - 5,823
----------------------------------------------------------------------
19,363 (7,562) - 11,801
Investment income 159 1,519 - 1,678
----------------------------------------------------------------------
Earnings (loss) from
continuing operations before
income taxes and non-
controlling interest 19,522 (6,043) - 13,479
Income tax provision
(recovery) 7,193 528 - 7,721
----------------------------------------------------------------------
Earnings (loss) from
continuing operations before
undernoted 12,329 (6,571) - 5,758
Gain on sale of interest
inFireOne - - 30,411 30,411
Non-controlling interest 1,738 - - 1,738
----------------------------------------------------------------------
Earnings (loss) from
continuing operations 10,591 (6,571) 30,411 34,431
Loss from discontinued
operations (including
restructuring of $266) - - (13,211) (13,211)
----------------------------------------------------------------------
Net earnings (loss) $10,591 $(6,571)$ 17,200 $ 21,220
----------------------------------------------------------------------
Annex B
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
(loss)" as a measure of earnings (loss) in this earnings release. In
establishing this supplemental measure of earnings (loss), we exclude
foreign exchange gains and losses, discontinued operations, impairment
losses, restructuring costs, gain on sale of interest in FireOne and
stock-based compensation 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, gain on sale of interest in FireOne and
stock-based compensation are not reflective of our core operations.
Adjusted earnings include the results of gaming transaction
processing affected by the enactment of the Act.
Management believes that adjusted earnings (loss) is useful to
investors as a measure of our earnings (loss) because it is, for
management, a primary measure of our performance, and provides a more
meaningful reflection of our earnings potential.
Adjusted earnings (loss) 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, net earnings (loss) or any
other amount determined in accordance with Canadian and U.S. GAAP. Our
measure of adjusted earnings (loss) reflects management's judgment in
regard to the impact of foreign exchange gains and losses,
discontinued operations, impairment losses, restructuring costs, gain
on sale of interest in FireOne and stock-based compensation 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 except per share amounts)
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
2006 2005 2006 2005
unaudited unaudited unaudited unaudited
Net earnings $ 1,946 467 $ 10,026 21,220
Add (deduct):
Foreign exchange (included
in selling, general and
administrative) 11 444 493 577
Stock-based compensation
(pertaining to selling,
general and administrative) 671 3,211 1,006 7,318
Impairment loss 1,910 - 1,910 -
Sale of interest in FireOne - 167 - (30,411)
Loss from discontinued
operations (including
restructuring costs) 2,489 1,879 7,990 13,211
Loss on disposal of
discontinued operations 4,283 - 4,283 -
-------------------- -------------------
Adjusted earnings $ 11,310 6,168 $ 25,708 11,915
==================== ===================
Diluted shares 25,558 25,640 25,776 25,013
Adjusted earnings per
diluted share $ 0.44 $0.24 $ 1.00 $0.48
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