PokerTek reports third quarter 2012 financial results

Financial Highlights (compared to prior year): Year‐to‐Date Highlights:
• Gross Margin increased to 74% from 70%
• Operating Expenses decreased 29%
• Operating loss improved 45%
• 25% growth in gaming positions

Quarterly Highlights:
• Gross Margin increased to 71% from 68%
• Operating expenses decreased 35%
• Operating loss improved 34%

“We made solid progress towards the goal of sustainable EPS profitability, with operational execution driving improved financial results,” commented Mark Roberson, CEO. “Business momentum is accelerating with recurring revenue increasing 21%, gross margins in excess of 70%, operating expenses declining 6% and pre‐tax income improving 31% from June to September. In addition, recurring revenue represented over 98% of total revenue for the third quarter, providing a solid foundation to support profitable growth for the balance of 2012 and 2013.

“I am encouraged by the opportunity to leverage our dominant position in electronic poker and accelerate growth. Gaming positions grew by 25% over the past 12 months and we expect momentum to continue as we expand in North America while also entering several new international markets with significant potential. In addition, we are developing Baccarat as the next new game on our ProCore platform, which will expand our market reach and placement opportunities. With continued growth, we should reach record installation levels in the near future. “Looking ahead, we are increasingly confident that our positive momentum will continue into Q4 and 2013 as we grow our recurring revenue and are nearing EPS profitability.”

Financial Summary
Revenues increased in North America where the firm is expanding in Ontario, Canada and the state of Ohio. Those increases were offset by reduced revenue from Mexico, reductions in revenue from Europe where macroeconomic conditions continue to impact discretionary spending on gaming activities, and changes in sales mix.

Recurring revenue from license and service fees decreased us$ 748 thousand for the first nine months of 2012 and us$ 159 thousand for the third quarter. On a sequential basis, revenue from license and service fees increased 21% from the second quarter of 2012 as recent installations began contributing to quarterly results.

Revenues from sales of systems and equipment decreased us$ 577 thousand for the first nine months of 2012 and us$ 420 thousand for the third quarter. In the current year, product mix has been more heavily weighted towards recurring revenue which makes for unfavorable prior year comparisons, but provides a healthier base for future growth.

Gross profit was us$ 2.8 million for the first nine months of 2012 compared to us$ 3.6 million in 2011, a reduction of us$ 0.8 million, or 22%. Gross profit was us$ 0.8 million for the third quarter of 2012 compared to us$ 1.2 million in 2011, a reduction of us$ 0.4 million, or 31.5%.

Gross profit margins increased to 73.6% in the first nine months of 2012 compared to 70.1% for the same period in 2011. Gross profit margins increased to 70.8% in the third quarter of 2012 compared to 68.1% in 2011. The changes in gross profit margin are attributable to changes in sales mix which are more heavily weighted to high margin recurring revenue in the current periods, as well as reduced product costs and depreciation.
Operating expenses decreased 28.8% to us$ 3.4 million for the first nine months of 2012 from us$ 4.7 million in 2011.

Operating expenses decreased 35.3% to us$ 1 million in the third quarter of 2012 from us$ 1.6 million in 2011. We have implemented cost reduction initiatives which have streamlined our overhead and reduced spending on personnel, regulatory approvals, and professional fees in both the quarterly and year‐to‐date periods. Net loss from continuing operations improved 45.4% to us$ 662 thousand for the first nine months of 2012 from us$ 1.2 million in 2011. Net loss from continuing operations improved 34.1% for the third quarter of 2012 to us$ 326 thousand compared to us$ 495 thousand for the comparable period of 2011.

Including results of discontinued operations, net loss improved 50.0% to us$ 612 thousand for the first nine months of 2012 from us$ 1.2 million in 2011. Net loss improved 33% to us$ 331 thousand for the third quarter of 2012 from us$ 494 thousand in 2011.

EBITDAS from continuing operations, a non‐GAAP financial measure, was a profit of us$ 290 thousand for the first nine months of 2012, compared to a profit of us$ 501 thousand in 2011. EBITDAS was a profit of us$ 8 thousand for the third quarter of 2012, compared to a profit of us$ 144 thousand in the prior‐year period.