Entertainment Gaming Asia Inc. (EGT)

Q2 2010 Earnings Call

August 5, 2010 8:30 am ET

Executives

Traci Mangini - SVP, Corporate Finance

Clarence Chung - Chairman and CEO

Andy Tsui - Chief Accounting Officer

Analysts

James Crabbe - Private Investor

Presentation

Operator

Welcome to the Entertainment Gaming Asia second quarter 2010 earnings call. (Operator Instructions) As a reminder, this conference is being recorded today, Thursday, August 5, 2010.

I would now like to turn the conference over to Ms. Traci Mangini.

Traci Mangini

Good morning, everyone. I am Traci Mangini, Senior Vice President, Corporate Finance for Entertainment Gaming Asia, formerly known as Elixir Gaming Technologies. With me today on the call are Clarence Chung, our Chairman and Chief Executive Officer; and Andy Tsui, our Chief Accounting Officer.

Before we start, please let me review our Safe Harbor Statement. Some of the statements that the company will make on this call such as statements of the company's plans and expectations are forward-looking. While forward-looking statements reflect the company's good faith beliefs, they are not guarantees of future performance and involve risks and uncertainties. The company's actual results could differ materially from those discussed on this phone call.

Some of these risks and uncertainties are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on forms 8-K, 10-K and 10-Q. Entertainment Gaming Asia assumes no obligation to publicly update or revise any forward-looking statements.

Now, the agenda for today's call will be as follows. First, Clarence will provide an overview of our new growth strategy for our gaming operations and then will discuss highlights of our second quarter earnings and recent corporate developments. Following that, Andy will review in more detail our financial results for the quarter. Clarence will then conclude our prepared remarks with our guidance for the second half of 2010 and future outlook. We will then take questions from investors and analysts.

With that, let me turn the call over to Clarence Chung.

Clarence Chung

Thank you, Traci, and good morning, everyone. I'm pleased to welcome you to our first conference call under our new name, Entertainment Gaming Asia. As you may know, on July 26, we changed our name to reflect not only the dramatic changes at the company over the past several years, but also our resizing new strategies to expand our gaming business model.

In addition to being a leading provider of gaming machines on the participation basis to emerging gaming markets in Pan Asia, our plans are underway to also serve these markets as an owner and operator of regional casinos to capitalize on an attractive growth potential in these underpenetrated and growing markets. We believe this incremental leg to our growth strategies allows us to leverage our existing market presence and relationships and offer us attractive long-term returns and greater operational controls.

In furtherance of these strategies, in Cambodia, we obtained a casino license from the Cambodian government and acquired the title of over seven acres of land in the Takeo Province near one of major Vietnam border crossings. We have already assembled a project development team and have been working with architects on the conceptual design.

In addition to being very excited about our casino development plan, we're also pleased with the strong performance of our existing operations, particularly our core gaming participation business. I would like to take this opportunity to discuss some of the highlights of our second quarter and more recent performance.

Total gaming participation revenues for the second quarter of 2010 was a record $3.5 million, up 24% on a sequential basis and double that of the year-ago period. This impressive growth was driven by improved consolidated average net win of $115 per unit and a higher installed gaming machine base.

We continue to adhere to our strict cost controls. And as a result, cash SG&A was $1.5 million for the second quarter of 2010, at the low end of our prior guidance range of $1.5 million to $1.8 million and down 24% from the prior-year period.

Adjusted EBITDA, which we define as earnings before interest, tax, depreciation, amortization and non-cash expenses, was $1.4 million for the second quarter of 2010, which represents our fifth consecutive quarter of positive adjusted EBITDA since our new business was enacted in September 2007. We continue to build our cash position. Our cash balance improved to $6.4 million as of June 30, 2010, up from $4.2 million as of December 31, 2009.

Clearly, our core gaming machine participation business, and in particular our operations at NagaWorld has been a strong contributor to our improved performance. At NagaWorld, as of August 1, we had a total of 656 gaming machine seats in operation and expect it to reach 670 seats within the next several weeks. This will fulfill our total contracted machine placements at this venue and represents remarkable growth in our installed base since our first placement of approximately 200 machine seats at NagaWorld in January 2009.

Despite the growing installed machine space during the recent quarter, average net win per unit for our operations in NagaWorld had remained very strong. We attribute this to our targeted marketing efforts to build strong customer loyalty, the right machine mix and the benefits of the closures of all slot clubs previously operating in the non-Pan regions earlier in 2009.

Average net win per unit for our operations at NagaWorld has continued to post improvement in recent month with average net win reaching $214 for the month of June and $227 for the month of July.

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