Harriet C. Fried – Investor Relations – Lippert/Heilshorn & Associates
Mark Roberson – Chief Executive Officer, Chief Financial Officer and Treasurer
James Crawford – President and Board Member
PokerTek, Inc. (PTEK) Q4 2010 Earnings Call February 24, 2011 11:00 AM ET
Thank you for the patience and welcome to the Fourth Quarter 2010 PokerTek Incorporated. Earnings Conference Call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session after management’s remarks. (Operator instructions)
I’d now turn the presentation over to your host for today’s conference, Ms. Harriet C. Fried with LHA. Please proceed.
Harriet C. Fried
Good morning. Welcome to PokerTek's investor conference call for the fourth quarter ended December 31, 2010. 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.
Before we begin, I'll read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are about to be made in this 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 SEC.
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 EBITDAS, a non-GAAP measure used internally to evaluate performance and allocate resources. The manner in which the company uses EBITDAS may differ from the manner in which other companies use the term EBITDA or EBITDAS.
With that introduction, I'd like to turn the call over to Mark Roberson. Go ahead please, Mark.
Thank you, Harriet. Good morning, everyone. Our full year operating results continued to improve with revenue growth and margin expansion. We had another quarter of positive EBITDAS and a 50% improvement in our core share results.
Our business fundamentals have responded favorably to the focussed marketing strategies and cost reductions efforts and we grew our installed base to a record level. Our bottom line per share results were by far the strongest in the company’s five-year history.
We are pleased with the recent trends and plan to build on these operating improvements as we move into 2011. Our strategic plan for the upcoming year is centered on accelerating our revenue and profit growth and encompasses the following key elements.
First, we’ll expand PokerPro’s market penetration. PokerPro is well established and it’s the dominant electronic poker table in the gaming industry. Through our sales efforts, PokerPro has evolved into a sustainable recurring revenue business, producing greater than 70% margins and driving our current bottom line results. Looking ahead, we have substantial opportunities to build on that success and grow recurring revenue and profitability in our target markets.
Second, we’re diversifying our product line to provide our customers with a more complete electronic table game offer. We chose Blackjack as our first new game, because many of our customers specifically requested a product built with a same liability intuitive game play and efficient line attributes that have made PokerPro successful. The addition of Blackjack Pro and other house-banned games to follow, will significantly enhance our revenue opportunities.
Third, as we grow our PokerPro footprint and rollout Blackjack, we will continue to control spending and stay lean. Our current performance is a direct result of operational discipline combined with a targeted sales and marketing strategy. With our focus moving from turnaround and restructuring to driving revenue growth and product diversification, we will continue to adhere to those disciplines.
We completed our first installation of Blackjack Pro last week. And so far, the initial level of game play and customer satisfaction has exceeded my expectation. (inaudible) I’m excited that we now have opportunities to grow our poker business, while opening up entirely new opportunities in electronic table game space.
James will highlight some of the specific market initiatives.
Thanks, Mark. Our primary focus remains on targeting opportunities in those markets with robust demand for electronic table game. We continue to concentrate on Mexico, European Canada and other markets where the environment is favorable for electronic table game.
As we noted in this morning’s press release, our PokerPro table count continues to grow and at the end of the fourth quarter, we achieved a record install base. The addition of Blackjack Pro has brought new attention to PokerTek and a result we are expanding our market opportunities as regulatory approvals are applied for and received.
In Mexico, we are the leading provider with over 60 tables installed. We believe the long-term addressable market for poker in Mexico is continuing to grow and we are focussed on increasing our placement numbers as the gaming environment in poker as market matures.
We are beginning to receive requests for delivery of Blackjack Pro to the Mexican market and we’re working on adding placements there in the second quarter of this year. In Europe, we received approval, signed a distribution contract and shipped the first of what we expect to be a significant number of tables into France.
With over 200 casinos, a large percentage of which are mostly electronic, our opportunity in France is strong for PokerPro and should increase with Blackjack Pro if and when we receive product approval.
We also entered into a trial for PokerPro with a creation lottery and look forward to permanently placing several tables there in the coming weeks. The rest of Europe and Africa are showing signs of improvement with additional installs in the last half of 2010 and more expected as we progress into 2011.
The explosive growth in Asia offers us tremendous potential for both of our products. We signed a distribution agreement for the Asian market that should start to take dividends as the year progresses.
As Mark said, we have installed our first Blackjack Pro tables and are pleased with the early results. The product has performed as expected and has proven to be as robust and as intuitive as our PokerPro products. We expect to be announcing more installs before the end of Q1 and we are building the pipeline for future installs with new and existing customers.
Blackjack Pro is build on our efficient poker platform, which offer low cost hardware and a player-friendly design. We are very excited about the potential for poker to be a growth engine for 2011. Mark?
Thanks for that update, James. I will now briefly walk through the full-year results and also discuss the reverse stock split that we announced this morning, after which I will open the call for any questions.
Total revenue for the fourth quarter was $1.6 million compared to $1.4 million in 2009. For the year, revenue was $5.9 million compared to $5.4 million for the year ended 2009. The increase in revenue is primarily attributable to the growth in table count.
Our PokerPro table count as of December 31 was 253, which compare to 206 at December of last year and 235 at the end of the third quarter.
Gross profit increased by 70% to $1.1 million for the 2010 quarter, from $0.7 million for the fourth quarter of 2009. Gross profit for the year was $3.9 million, compared to $2.4 million last year.
Gross profit margins as a percent of revenue increased to 70% for the quarter and 66% on a full-year basis. This compares to 48% and 44% from the prior year period. The increase in gross profit and gross profit percentage is a function of the increase in top line revenue combined with growth in our margin rate and it’s attributable to improved product performance, with more efficient asset utilization in our target markets and lower depreciation of the tables.
Operating expenses were $1.6 million for the quarter compared to $1.4 million last year. For the full year, expenses were $6.5 million which compares to $7.3 million in 2009.
We implemented significant cost reduction initiatives leading up to the third quarter of last year and our operating expenses have remained relatively stable in the $1.4 million to $1.6 million and $1.7 million range for the past several quarters. Even as we've invested in expanding our international business and improving our products.
Revenue growth, margin expansion and mean expense management combined drives significant improvements in our bottom line operating results. Net loss from continuing operations improved 42% to $0.5 million or negative $0.03 per share from $0.8 million or $0.06 per share last year.
On a full year basis, the improvement was 46% to $2.8 million or $0.19 per share from $5.3 million or $0.44 per share on a full year basis. Including the results of our discontinued operations, quarterly net loss improved 49% to $0.5 million or $0.03 per share from $0.9 million or $0.07 per share last year. On a full year basis the improvement was 29% from $0.27 per share from $0.47 per share last year.
EBITDA, non-GAAP financial measures improved to a profit of 3,000 for the 2010 fourth quarter compared to a loss of $111,000 in the prior year period. EBITDA for the year was a loss of $104,000 compared to a loss of $1.7 million in 2009. We also announced this morning that we will be implementing a one for 2.5 reverse stocks split effective with the opening of the markets tomorrow. We are taking this step ahead of the revenue and earnings acceleration we expect to be driven by plans to roll out our new blank cheque offering and expand our footprint.
Our shareholders worded overwhelmingly to approve the reverse split at our last annual meeting and we believe that preserving our NASDAQ listing and increasing our share price has been official to our shareholders.
In closing, we finished 2010 with target momentum, rolling our installed base, increasing recurring revenues, expanding our margins and driving bottom line results. I am confident in our business and believe we're pleased to grow and we will continue to deliver positive operating result in 2011, as we execute our strategic plan and grow our electronic
table games business.
Operator, please open the line for any questions.
Thank you sir. (Operator Instructions)