PokerTek, Inc. (



Q1 2011 Earnings Call

May 4, 2011 2:30 pm ET


Tracy Egan - VP Marketing and Product Management

Mark Roberson - CEO and CFO

James Crawford - President


Jeffrey Hwang

Martin Kramer



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Good day, ladies and gentlemen and welcome to the PokerTek Incorporated, First Quarter 2011 Earnings Conference Call. My name is Amecia, and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator instructions)

I would now like to turn the call over to, Ms. Tracy Egan, Vice President of Marketing. Please proceed.

Tracy Egan

Thank you and good afternoon. Welcome to PokerTek's investor conference call for the first quarter ended March 31, 2011. The purpose of today's call is to provide our investors and other interested parties with information about the Company’s operating results and to communicate other business developments.

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Joining us today are Mark Roberson, Chief Executive Officer and Chief Financial Officer, and James Crawford, President. Today’s conference call is being simultaneously webcast and will be also be archived for replay purposes.

Before we get started, I would like to remind you that certain comments about future expectations, plans and prospects for the Company constitute forward-looking statements for purposes of the Safe Harbor provision and the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these expectations and we undertake no obligation to update those expectations.

We will also be discussing certain financial measures such EBITDA, which represent a non-GAAP financial measure. The importance of this measure to investors as well as reconciliation to those directly comparable GAAP measures can be found in today’s press release announcing our first quarter results.

Now I will turn the call over to Mark Roberson.

Mark Roberson

Thanks Tracy. Good afternoon and welcome to the first quarter earnings call. By now you should have a copy of the press release detailing our performance for the quarter that was released earlier this morning. In the first quarter PokerTek generated positive cash from operations. Earnings before interest and taxes, depreciation and amortization, and share based compensation were positive for the second consecutive quarter.

Gross margins continue to expand, exceeding 70% and operating expenditures remain stable even as we launched a new product line. Our net loss from continuing operations improved by 43% on a year-over-year basis compared with the first quarter of 2010. This is our ninth consecutive quarter where results from continuing operations when compared to the prior year period have improved by greater than 25%.

This trend of continuous improvement demonstrates our focus on strengthening our recurring Poker business while controlling costs, entering new markets and adding new products to accelerate growth. Last quarter, I discussed our strategic plan for 2011 and today I will briefly reiterate those key elements and comment on our progress through the first quarter.

First, we will continue to expand poker penetration in our target markets. PokerPro is the established market leader in electronic poker generating sustainable recurring revenue with greater than 70% margins. During Q1 we placed our first tables in France on a competitive RFP to supply tables to the Croatian Lottery and expanded our presence in Tanzania.

Looking ahead in 2011 I expect to see further international expansion as we increase our penetration. We also plan to enter new markets such as South America and other parts of Europe and Africa, which offer substantial growth potential.

Second, we are expanding our product line and becoming a more complete electronic table games company. We launched Blackjack Pro this quarter which is our first house-banned game. We play six tables initially and I am pleased with both the player and the operator response thus far. I believe that expanding beyond poker to other electronic table games will significantly increase our opportunities for growth. I look forward to providing more substantial details and update as we proceed through the year.

Third is, our focus still remains to accelerating growth and expanding our product offering. We will stay lean and leverage our cost structure. Our operating expenses have been stable for the past several quarters and we expect to control expenses tightly even as our international footprint expands and our business becomes more diverse.

I’ll now turn the call over to James, who’ll provide more detail on our sales and marketing plans.

James Crawford

Thanks Mark. Let me first begin by giving you an overview of our poker business and then we will discuss Blackjack.

PokerPro remains the industry’s leading electronic poker product and we continue to leverage our leadership position as we expand into new markets. France is a great example of a new market with tremendous opportunity. PokerPro is the only electronic table game approved there and our first placements have found a solid base of players.

There are approximately 200 casinos in France, of which 60% have between zero and two tables, which makes an easier target when you are displacing labor. Labor is very expensive in France; when you combine these facts you have environment that is ideal for PokerPro.

We were able to add tables into sites that don't currently offer poker and convert smaller rooms to become entirely electronic.

We believe that PokerPro's market penetration will increase as we gain exposure from our first two installations in the market.

We entered the African continent for a second time with an installation in Tanzania in 2010, only seven months after our initial installation, the customer success with PokerPro led the operator to order two additional tables for their poker room in Q1.

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