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PokerTek, Inc. (PTEK) Is “One To Watch”

|Includes: PokerTek, Inc. (PTEK)

PokerTek has been squarely focused on their high-margin gaming business since 2010 (founded in 2003 and previously marketed the Heads-Up Challenge product targeted at bars and restaurants), developing, manufacturing, and marketing the world's leading electronic poker tables, the Blackjack Pro™ and PokerPro®.

Poker has seen a resurgence of popularity lately and has even broken solidly into the mainstream. An exciting game of action has come out of the smoky back rooms and into the limelight, with big, high-profile shows like ESPN's "World Series Of Poker," or Bravo Network's "Celebrity Poker Showdown." This kind of gaming felt somewhat sequestered for decades to the more mainstream markets, but as casinos and other venues have proliferated and popular gaming venues have become more family-oriented, the space has really opened up. Now the same kind of fast-paced Texas Hold 'Em games that visitors to Trump's Taj Mahal Casino in Atlantic City have come to know and love, are popping up all over the place at new casinos, racinos (dog and pony raceways with gambling), and various other clubs, in addition to a considerable business generated by the cruise ship market.

The company's electronic poker table designs really show an in-depth knowledge of the game, with features like the Lucky Ladies™ hand side-bet setting on the Blackjack Pro (queen of hearts pair with dealer blackjack, often looked at by players as a sweet deal that allows them to up their overall hold percentage by as much as 10%), that can be easily turned on or off to allow side-bets in games where customer demand calls for it. This level of customizability goes great with the beautifully designed tables, which have a huge center dealer display that really engages gamers and encourages the kind of interactions that make the game so much fun and which keep people coming back for more, irrespective of winning ups and downs (alcohol, socializing, and the gregarious gaming atmosphere created brings people back time and time again). Total control over the poker environment is available to managers, from Standard and European rule sets, to min/max betting parameters, custom split/double down rules, custom money and surrenders, fully-configurable insurance, cost of insurance, and payout, as well as the number of decks in play or the shuffle frequency, all of which can be easily configured via the highly intuitive software and touch-screen interface.

Gorgeous graphics that are also highly intuitive/symbolic make the player-specific screens easy and fun to use (there is even a peek feature for looking at your hand), providing players with instant access to the game rules, limits, and payout structure, as well as other relevant information. Despite all of these features and the multiple screens, the tables themselves have a really small overall footprint (54″ x 84″ x 39″), making it easy for managers to bring in a table, because they can sandwich the unit in just about anywhere on the gaming floor. The extensibility and lifespan of the units is superb as well, as each is built on PTEK's ProCore™ Platform, allowing multiple games to run off the same unit, or for new content and games to be added as they become available. Moreover, this platform's execution is very open-ended from a design standpoint, using high-powered yet low-cost components to pack a lot of bang into the form factor for the buck.

The Blackjack Pro comes in both an account-based and Slot Accounting System/Ticket In-Ticket Out (SAS/TITO) integrated, 6-seat table format. The larger, 10-seat PokerPro is a flagship product that creates a show-stopping draw on looks alone and offers the widest feature set available in a live digital poker table. In fact, in many jurisdictions, this digital hybridization between traditional card games and video poker offers proprietors a way to bring a smart and legal alternative to manual poker tables in, not only authentically recreating the card game experience, but even surpassing it with added features/amenities. Approved in the vast majority of gaming jurisdictions, the PokerPro is the also the only automated poker table available in the massive Nevada gaming market and the units are fully certified by all the top, globally recognized gaming labs, including GLI and BMM.

The PokerPro is a marvel of modern design, allowing for single-table and multiple-table tournament play, irrespective of card game. The tables are also multi-lingual (Chinese, French, German, Italian, and Spanish), with real-time loyalty program integration via the built-in and 100% operator configurable, PokerPro Rewards system. This is a great way to run promotions and rewards for new or veteran players, making comprehensive incentives-based player engagement super easy to implement. The PokerPro is totally secure as well, featuring player-specific PIN protected card and other anti-collusion systems to stop cheating and security threats in their tracks, all with a complete reporting back-end that not only provides accurate data resolution metrics, but also allows players to look back at old hands and how they played.

The company broke new sector ground in December, working with partners DEQ Systems and the Talisman Group to joint-develop and license the new EZ Baccarat™ table, which, like the company's other products, is built on the rock-solid ProCore electronic gaming platform. The EZ Baccarat operating system (by DEQ) has already seen considerable success in just the last three years, swelling to over 500 games across multiple jurisdictions and PTEK had a great launch of their compliant, performing replica (created hand-in-hand with EZ Baccarat developers), rapidly deploying initial installations of the new system on several cruise ships in Asia the week of the debut announcement.

PTEK saw a solid uptick in its Ontario market recently (reported Dec 20, 2012), adding substantial territory via a third Blackjack Pro installation at the Rideau Carleton Raceway just southeast of downtown Ottawa (in Gloucester). This brings PTEK up to 278 positions in Ontario alone, with a whopping 78% jump in overall presence for the quarter. Note that the Ontario announcement followed fast on the heels of PTEK's re-entry into the vast and thriving Mexican gaming market (Dec 18, 2012), which previously represented 17% of annualized recurring revenue, coming back in with a storm and already doing multiple PokerPro installations that have since gone live.

Also take into account the December 11 announcement that the company had finalized plans for Argentina, Colombia, and Peru. With the selection of key distribution partners for these markets and the scheduling of installations, it is easy to see that PTEK has a winning, globally-focused end-market strategy on their hands. The company has a devised a very wise tactical approach to the growing global space, especially considering the clear trend in gaming worldwide that promises a bright future for the company's shareholders, even as the company crosses the threshold (announced Jan 8) back above the $1.00/share NASDAQ listing requirement ($1.24 as of mid-day, Jan 10).

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