PokerTek's CEO Discusses Q4 2011 Results - Earnings Call Transcript

PokerTek, Inc. ( PTEK)

Q4 2011 Earnings Call

March 13, 2012 11:00 AM ET

Executives

Tracy Egan – VP, Marketing

Mark Roberson – CEO and CFO

James Crawford – President

Analyst s

Thomas Pierce

James Noel – Private Investor

Presentation

Operator

Good day ladies and gentlemen and welcome to the fourth quarter 2011 PokerTek Incorporated earnings conference call. At this time all participants are in a listen-only mode.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference to Tracy Egan, Vice President of Marketing. You may proceed.

Tracy Egan

Thank you and good morning. Welcome to PokerTek's investor conference call for the year ended December 31st, 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.

Joining us today are Mark Roberson, Chief Executive Officer and Chief Financial Officer, and James Crawford, President. Today’s call is being simultaneously web cast 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 under federal securities laws. 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 as earnings before interest, taxes, depreciation, amortization and share-based compensation which represent a non-GAAP financial measure. A reconciliation to the GAAP financial statements can be found in today’s press release, and we also ask that you refer to our public filings with the SEC for additional information.

Now, I’ll turn the call over to Mark.

Mark Roberson

Thanks Tracy. Good morning and thank you all for joining us today. We have a lot to cover, so jump right in. 2011 was a year of strong operational performance for PokerTek. We grew revenues for the year, margins increased to over 70% and we continue to reduce our operating expenses. As we exited Mexico in September due to changing regulations, we refocused our efforts in other markets and took steps to further reduce our expenses. As a result, fourth quarter profitability improved over prior year, despite the reduction in revenue for Mexico and we posted our first full year of EBITDA's profitability.

A key element of our strategy and the strength of PokerTek's business model is the ability to balance growth and license and service fees which generate high margin, predictable recurring revenue with hardware sales which also generate high margins with significantly improved ROI and cash flows. Combined with the focus on targeted product development and controlled operating expenses, PokerTek's financial performance has demonstrated a trend of continued improvement.

Entering 2012 we are focused on increasing market penetration to drive revenue and profitability while positioning ourselves to take advantage of the improving economic and legislative climate for gaming. We have a dominant position in electronic poker where we have limited competition, with superior product and expect to increase market share as we execute in our target markets. The pro four platform for house bank blackjack and specialty games all separates new opportunities for growth and product diversification.

We are continuing to expand blackjack on crew ships and are beginning installations on land based properties. Based on identified demand in non-geo jurisdictions, we're delayed (inaudible) jurisdictions, we're delaying ProCore submission to conserve resources and focus on upcoming installation opportunities while developing new gains for the platform. We successfully completed field trial on Ontario and expect additional placements in 2012. We made changes to our distribution in France and expect to start capitalizing on opportunities in that market as well. We're in the latter stages of the sales cycle with a number of other markets and customers that we're excited about and expect to drive performance in the current year.

James Crawford will now provide additional information regarding our progress in several of those key markets.

James Crawford

Thanks Mark. In 2011 we made real progress in several new markets that we've been working on and we're able to execute on many of these opportunities in Q4. We are expecting strong growth in 2012 with meaningful opportunities in several domestic and international market. Poker Pro was approved for field trial in October by the Ontario Lottery and Gaming Corporation and we installed 20 player positions at western fair district casino in London Ontario. The trial concluded successfully in December and the site immediately added 10 more player positions to do to the success of the product. LLG operates 27 gaming sites across Ontario, many of which offers slots and electronic table games. This is an idle market for PokerTek's products and we've now submitted our ProCore platform to their lab for approval. We are expecting several additional Poker Pro installations this year and see Ontario quickly becoming an important contributor to our growth for 2012.

In Europe, we continue to expand in Romania where we've added 50 player positions to new properties operated by one of our existing customers in Q4. This gives us a total of 130 player positions at three sites in Romania where there is little manual competition and the security of Poker Pro's cashless electronic platform is appreciated and preferred by the operators. We are seeing the same types of opportunities developing in other parts of Eastern Europe and expect to see similar growth prospects as we progress into 2012.

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