PokerTek, Inc. ( PTEK) Q3 2011 Earnings Call November 8, 2011 11:00 AM ET Executives Tracy Egan – VP, Marketing Mark Roberson – CEO, CFO and Treasurer James Crawford – President Analysts Jeffrey Link [ph] Presentation Operator
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» PokerTek CEO discusses Q3 Results – Earnings Call Transcript
Now, I’ll turn the call over to Mark.Mark Roberson Thanks, Tracy. Thank you all for joining us today. On today’s call, we will review the quarterly operating results, and also provide you with an update on the state of the business, and our growth plans. I know many of you will be interested in hearing about the situation in Mexico; we will discuss the current status and our future expectations for that market, and also update you on market opportunities in other markets that will drive placements and operating results going forward. Overall, Q3 marked another quarter of solid financial performance. On an annualized basis we stand at approximately 6.5 million in recurring revenue, producing strong margins and stable operating expenses. Q3 also marked our fourth consecutive quarter of EBITDAS profitability. As we look ahead, there are several key drivers that will impact our trajectory over the next several quarters. First, as previously announced, we have moved the tables in Mexico following a determination that all electronic roulette incurred gains are not permitted. Based on the information we are receiving from our customers and advisers in the market, we believe this to be a temporary situation. The government is currently focused on inspecting casino operators and tightening up enforcement, which has resulted in the closure of numerous properties operating without proper permits, import documents and other paperwork. Once that phase is complete, the expectation in the market is that those remaining properties will be allowed to reinstall electronic roulette and card games in early 2012. Prior to removal, the tables in Mexico generated approximately 70,000 of monthly revenue at approximately 45% gross margins. The table performance and margins were significantly below what we see in other markets, where our margins traditionally run at approximately 70%. We are proactively bringing a small number of tables back to the US to meet anticipated demand in other markets, but our plan is to leave the majority of the Mexico tables in country, while the regulatory process runs its course.
We believe that if electronic tables are allowed back on the floor next year, the market will be more concentrated as a result of the removal of illegal operations, especially where manual games are being dealt. As a result, if the government allows e-tables back on the floor, we expect the market to have fewer operators and those installations should generate revenue and margins more in line with our other markets.Outside of Mexico, we have several significant opportunities in the pipeline. Throughout our markets we have a dominant position in automated poker, and we estimate the addressable market to be approximately 8000 to 10,000 gaming positions. We have limited competition in this niche market, and we believe we have room to increase our installed base by a factor of three or more in our target markets over time. Near time there are several meaningful placement opportunities teed up and James will elaborate on those specific markets in a few moments. The ProCore platform for house bank Blackjack and specialty games also creates significant placement opportunities for growth and product diversification. We are approaching the house bank e-tables market in a two-phased approach. First we will continue to deploy the account-based version with Blackjack to cruise ships, and also to select markets in Europe where TITO and GOI [ph] approvals are not required. We have identified specific near-term installation targets estimated at 600 to 900 player positions for the account-based version. Second we plan to submit the SAS/TITO version of the ProCore table to GOI for regulatory approval in the coming weeks. Once approved the SAS/TITO version of the ProCore table opens larger gaming markets for Blackjack and additional specialty games in regulated markets. Read the rest of this transcript for free on seekingalpha.com