PokerTek CEO Discusses Q3 Results – Earnings Call Transcript

Call Start: 11:00

Call End: 11:20

PokerTek, Inc. ( PTEK)

Q3 2010 Earnings Conference Call

November 02, 2010 11:00 am ET

Executives

Jody Burfening – IR, Lippert/Heilshorn & Associates

Mark Roberson – CEO, CFO & Treasurer

James Crawford – President & Board Member

Analysts

Shawn Bitzan - Feltl & Company

Caroline Hughes - D&B

Tom Pierce - Sargent & Lundy

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 PokerTek Inc earnings conference call. My name is Annie and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Ms Jody Burfening. Please proceed ma’am.

Jody Burfening

Thank you operator and good morning everyone. Welcome to PokerTek’s investor conference call for the third quarter ended September 30, 2010. This is Jody Burfening of Lippert/Heilshorn & Associates. The purpose of today’s call is to provide PokerTek’s investors and other interested parties with information about its operating results and to communicate other business developments.

Joining us from management are Mark Roberson, Chief Executive Officer and Chief Financial Officer; and James Crawford, President and Founder.

Before we begin the call, I’ll read the Safe Harbor statement under Private Securities Litigation Reform Act of 1995. The statements that are about to be made in this conference call that are not historical facts are forward-looking statements, and involve risks and uncertainties. These and other risks and uncertainties are described in more detail in the company’s most recent Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission.

The company expressly disclaims any obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events, or otherwise. The company may also discuss EBITDA, a non-GAAP measure used internally to evaluate performance and allocate resources on today’s call. The manner in which the company uses EBITDA may differ from the manner in which other companies use the term EBITDA or EBITDAS.

With that introduction, I’ll now turn the call over to Mark. Go ahead please Mark.

Mark Roberson

Thank you Jody. Welcome everyone; we appreciate you joining us today. Over the past several quarters we’ve been focused on targeting the right market, repositioning our business and running lead. Those efforts continue to drive favorable trends in our operating results while at the same time we’ve been investing in opportunities for future growth.

For the quarter, our margins increased 87%, our bottom line improved 55% and our operating cash flow was positive for the first time. We are increasing market penetration in our target market especially in Mexico where we have firmly established a dominant share as well as in Eastern Europe. We are also pursuing growth opportunities in several new regions as we look to diversify our market base and expand our growth. France, where we announced regulatory approval last week, is one example of the initiatives to expand our global footprint.

We’re also progressing its plans with the ProCore platform. For those who may be unfamiliar, ProCore is a new hardware platform which lowers our manufacturing costs while also allowing us to diversify our electronic table game offerings. The first game being released on the new platform is BlackJack which will be showing at the upcoming Global Gaming Exposition in Las Vegas later this month. Our improving financial performance comes down to three basics, financial discipline, cost control and maintaining of target focus in sales and marketing.

We will continue to demonstrate that same financial discipline as our focus shifts from turnaround and cost reduction to increase in market penetration and revenue growth. James Crawford will discuss some of the marketing initiatives that we’re currently working on after which I’ll review the operating results in more detail and we’ll take your questions. James?

James Crawford

Thanks Mark. As we look at our market opportunities for PokerTek, there are three distinct areas of focus. We are being cautiously aggressive in traditional North American markets where gaming is highly saturated. We are being very active in Mexico and Eastern Europe where the environment for electronic table games is favorable. Looking ahead we expect to continue growing in these target markets while also entering new markets and adding new products.

In Mexico, we have established PokerPro as the dominant poker table where we now have over 60 tables installed. Our current penetration represents approximately 25% of the estimated addressable market for PokerPro and we believe that the sizeable market will continue to grow especially since large operators are beginning to market poker and that our share of the market will also continue to expand.

In Europe we have a solid pipeline of opportunities that and opened a, excuse me, opportunities and opened a new 8 table room in Bucharest during the third quarter. We also placed PokerPro at other sites in Eastern Europe and Africa. With approval in France now in hand we are actively working on opportunities in that market with over 200 casinos a large percentage of which are electronic. We believe that the France market will provide significant growth opportunities in 2011.

We are also actively pursuing the South American and Asian markets where we see solid growth potential for both PokerPro and ProCore. The Asian markets in particular are experiencing explosive growth and there are several specific target markets that are ideal for electronic table games.

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