Entertainment Gaming Asia CEO Discusses Q3 2010 Results - Earnings Call Transcript

Entertainment Gaming Asia, Inc. ( EGT)

Q3 2010 Earnings Call

October 27, 2010 8:30 a.m. ET

Executives

Traci Mangini - SVP, Corporate Finance

Clarence Chung - Chairman and CEO

Andy Tsui - Chief Accounting Officer

Analysts

James Crabbe - Private Investor

Paul Sonz – Sonz Partners

Presentation

Operator

Welcome to the Entertainment Gaming Asia Third Quarter 2010 Earnings Conference Call. During the presentation all participants will be on a listen only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Wednesday, October 27, 2010.

It is now my pleasure to turn the conference over to Ms. Traci Mangini. Please go ahead.

Traci Mangini

Thank you, operator, and 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, Chairman and Chief Executive Officer; and Andy Tsui, 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 conference 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 do 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 discuss the highlights of our third quarter earnings and then provide an update on our new growth plan for our gaming operations.

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 fourth quarter of 2010 and future outlook. We will then be pleased to take your questions.

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

Clarence Chung

Thank you Traci, and good morning, everyone. I am pleased to report another quarter of solid financial performance, and the achievement of positive GAAP earnings. This is an important milestone for the company following our successful positioning and streamlining of our operations and marks a new chapter in the company’s history. With solid recurring cash flows from all existing operations, we are now posed to embark on our exciting new growth strategies to expand our gaming business model, and become an owner and operator of Casinos in interactive and emerging gaming market in Asia.

I would now like to share some of the financial highlights of our third quarter performance.

Total Gaming Participation revenues for the third quarter of 2010, was a record $4.1 million, up 16% on the sequential basis, and more than doubled that of the year ago period. Its impressive growth was driven by improved consolidated average net win of $125 proceeds, and a slightly higher in-store gaming machine space.

We continue to adhere to our strict cost control, and as a results, cash SG&A was $1.3 million for the third quarter of 2010, below our party guardian’s range of 1.5 to $1.8 million, and down 10% from the prior quarter, 11% from a year-ago period.

Adjusted EBITDA, which we defined as earnings before interest, taxes, depreciation, amortization, and long-term expenses was $3 million for the third quarter of 2010, which is more than double of that of the prior quarter and represents much improved annual EBITDA run rate for the company.

Net income was $725,000 or $0.01 per share, which represented the first quarter of positive GAAP earnings since the company practice its new business model in September 2007.

Lastly, we continue to build our cash position during the quarter with the cash flow [inaudible] of $8.8 million, including 1 million housed in escrow for continue development activity, as of September 30, 2010, up from $6.4 million as of June 30, 2010 and $4.2 million as of December 31, 2009.

Our core gaming machine participation business in particular, our operations at NagaWorld has been a strong contributor to our improving performance. At NagaWorld, as of September 30, 2010, we had approximately 670 gaming machine seats in operation on fine casino floor space. This fulfills our total contracted machine placements at these venue, and represents remarkable growth in our in-store base since our first placement of approximately 200 machines in January of 2009.

Despite the growing in-store machine base during the recent quarter, average net win for units for our operations in NagaWorld has remained very strong.

Average net win for the quarter was $219 compared to $196 in the prior quarter and $187 in the prior year period. We attribute is to our targeted marketing efforts to build strong customer loyalty and the right machine mix.

The strong results at NagaWorld have resulted in attractive cash flows to us. For the first nine months of 2009 - 2010, our operations at NagaWorld have generated approximately $11 million in cash flow from operations. And as of mid-August 2010, we had recouped all commitment fees previously paid to NagaWorld.

Turning to the Philippines, we continue to focus on optimizing performance by refining and deploying our gaming machine base within these markets to focus assets on higher performing venues. As of September 30, 2010, we had 846 seats in operation across six venues.

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