PokerTek Reports Third Quarter 2012 Financial Results

PokerTek Reports Third Quarter 2012 Financial Results 
Recurring Revenue Drives Margin Expansion; Cost Reductions Drive
Improved Operating Results; Targeting EPS Positive 
MATTHEWS, NC -- (Marketwire) -- 11/06/12 --  PokerTek, Inc. (NASDAQ:
PTEK) today reported financial results for the period ended September
30, 2012. 
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, Chief Executive Officer. "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
 Total revenue was $3.8 million for the first nine
months of 2012 compared to $5.2 million in 2011, a reduction of
25.7%.For the third quarter, total revenue was $1.1 million in 2012
compared to $1.7 million in 2011, a reduction of 34.2%. 
Revenues increased in North America where we are 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 $748
thousand for the first nine months of 2012 and $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 $577 thousand
for the first nine months of 2012 and $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 $2.8 million for the first nine months of 2012
compared to $3.6 million in 2011, a reduction of $0.8 million, or
22.0%. Gross profit was $0.8 million for the third quarter of 2012
compared to $1.2 million in 2011, a reduction of $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 $3.4 million for the first nine
months of 2012 from $4.7 million in 2011. Operating expenses
decreased 35.3% to $1.0 million in the third quarter of 2012 from
$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 $662 thousand
($0.09 per share) for the first nine months of 2012 from $1.2 million
($0.18 per share) in 2011. Net loss from continuing operations
improved 34.1% for the third quarter of 2012 to $326 thousand ($0.04
per share) compared to $495 thousand ($0.07 per share) for the
comparable period of 2011.  
Including results of discontinued operations, net loss improved 50.0%
to $612 thousand ($0.08 per share) for the first nine months of 2012
from $1.2 million ($0.19 per share) in 2011. Net loss improved 33.0%
to $331 thousand ($0.04 per share) for the third quarter of 2012 from
$494 thousand ($0.07 per share) in 2011. 
EBITDAS from continuing operations, a non-GAAP financial measure
(described below), was a profit of $290 thousand for the first nine
months of 2012, compared to a profit of $501 thousand in 2011.
EBITDAS was a profit of $8 thousand for the third quarter of 2012,
compared to a profit of $144 thousand in the prior-year period. 
Balance Sheet and Cash Flow Information
 The Company's cash used in
continuing operations improved 28% to $472 thousand for the first
nine months of 2012, from $659 thousand for 2011. The improvement in
operating cash flow was primarily due to improved profitability. 
Total debt was $300 thousand as of the September 30, 2012. During the
year, we have reduced debt by $400 thousand or 57%. In addition, we
completed a private placement transaction in the third quarter for
net proceeds of $240 thousand, further strengthening our balance
sheet. 
Gaming Positions Information
 Gaming positions deployed worldwide
totaled 2,442 as of September 30, 2012 composed of 2,304 PokerPro and
138 ProCore gaming positions. As of September 30, 2011, 1,958 gaming
positions were deployed worldwide composed of 1,874 PokerPro and 84
ProCore gaming positions. 
Conference Call
 Interested parties may listen to and participate in
the conference call by dialing 866.383.8003 (U.S./Canada) or +1
617.597.5330 (Other) and entering passcode 77061043. A live webcast
of the conference call will be available through a link on our
website, www.pokertek.com, under the heading "Investors". For those
unable to participate in the live call, an archived replay will be
made available on our website. A replay of the conference call will
also be available approximately two hours after the conclusion of the
call for approximately one week by dialing 888.286.8010 (U.S./Canada)
or +1 617.801.6888 (Other) and entering passcode 23304666. 
Use of Non-GAAP Measures
 PokerTek, Inc. prepares its consolidated
financial statements in accordance with United States generally
accepted accounting principles ("GAAP"). In addition to disclosing
financial results prepared in accordance with GAAP, the company
discloses information regarding EBITDAS, which differs from the term
EBITDA as it is commonly used. In addition to adjusting net income
(loss) from continuing operations to exclude taxes, interest, and
depreciation and amortization, EBITDAS also excludes noncash charges,
certain non-recurring charges and share-based compensation expense.
EBITDA and EBITDAS are not measures of performance defined in
accordance with GAAP. However, EBITDAS is used internally in planning
and evaluating the company's operating performance. Accordingly,
management believes that disclosure of this metric offers investors,
bankers and other stakeholders an additional view of the company's
operations that, when coupled with the GAAP results, provides a more
complete understanding of the company's financial results. 
EBITDAS should not be considered as an alternative to net loss or to
net cash used in operating activities as a measure of operating
results or of liquidity. It may not be comparable to similarly titled
measures used by other companies, and it excludes financial
information that some may consider important in evaluating the
company's performance. A reconciliation of GAAP net loss from
continuing operations to EBITDAS is included in the accompanying
financial schedules.  
About PokerTek, Inc.
 PokerTek, Inc. (NASDAQ: PTEK)
(www.pokertek.com) is a licensed gaming company headquartered in
Matthews, NC that develops and distributes electronic table games
solutions for the gaming industry. The company's products are
installed worldwide, and include PokerPro and Blackjack Pro. For more
information, visit: www.pokertek.com. 
This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which
are made in accordance with the Private Securities Litigation Reform
Act of 1995. The forward-looking statements herein include, but are
not limited to, the expected adoption of our gaming systems by
casinos and other customers, and the expected acceptance of our
gaming systems by players. Our actual results may differ materially
from those implied in these forward-looking statements as a result of
many factors, including, but not limited to, the impact of global
macroeconomic and credit conditions on our business and the business
of our suppliers and customers, overall industry environment,
customer acceptance of our products, delay in the introduction of new
products, further approvals of regulatory authorities, adverse court
rulings, production and/or quality control problems, the denial,
suspension or revocation of permits or licenses by regulatory or
governmental authorities, termination or non-renewal of customer
contracts, competitive pressures, and our financial condition,
including our ability to maintain sufficient liquidity to operate our
business. These and other risks and uncertainties are described in
more detail in our most recent annual report on Form 10-K and other
reports filed with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date they are made.
We undertake no obligation to update or revise such statements to
reflect new circumstances or unanticipated events as they occur,
except as required by applicable laws, and you are urged to review
and consider disclosures that we make in the reports that we file
with the Securities and Exchange Commission that discuss other
factors germane to our business. 


 
                               POKERTEK, INC.                               
                   CONSOLIDATED STATEMENTS OF OPERATIONS                    
                                (Unaudited)                                 
                                                                            
                            Three Months Ended         Nine Months Ended    
                               September 30,             September 30,      
                         ------------------------  ------------------------ 
                                          2011                      2011    
                             2012       Restated       2012       Restated  
                         -----------  -----------  -----------  ----------- 
Revenue                                                                     
  License and service                                                       
   fees                  $ 1,097,641  $ 1,257,107  $ 3,087,984  $ 3,835,999 
  Sales of systems and                                                      
   equipment                  16,537      436,710      745,714    1,322,494 
                         -----------  -----------  -----------  ----------- 
    Total revenue          1,114,178    1,693,817    3,833,698    5,158,493 
Cost of revenue              324,816      540,690    1,012,172    1,542,756 
                         -----------  -----------  -----------  ----------- 
    Gross profit             789,362    1,153,127    2,821,526    3,615,737 
                         -----------  -----------  -----------  ----------- 
                                                                            
Operating expenses:                                                         
  Selling, general and                                                      
   administrative            801,320    1,082,393    2,541,998    3,377,634 
  Research and                                                              
   development               163,754      240,812      537,650      746,628 
  Share-based                                                               
   compensation expense       77,943      274,846      274,649      541,484 
  Depreciation                 2,480       18,991       10,943       59,750 
                         -----------  -----------  -----------  ----------- 
    Total operating                                                         
     expenses              1,045,497    1,617,042    3,365,240    4,725,496 
                         -----------  -----------  -----------  ----------- 
                                                                            
Operating loss              (256,135)    (463,915)    (543,714)  (1,109,759)
                         -----------  -----------  -----------  ----------- 
                                                                            
  Interest expense, net       17,752       20,637       58,417       73,646 
                         -----------  -----------  -----------  ----------- 
                                                                            
Net loss from continuing                                                    
 operations before                                                          
 income taxes               (273,887)    (484,552)    (602,131)  (1,183,405)
                         -----------  -----------  -----------  ----------- 
                                                                            
  Income tax provision        52,353       10,417       59,794       29,958 
                                                                            
Net loss from continuing                                                    
 operations                 (326,240)    (494,969)    (661,925)  (1,213,363)
                         -----------  -----------  -----------  ----------- 
  Income (loss) from                                                        
   discontinued                                                             
   operations                 (4,754)       1,216       50,113       (9,187)
                         -----------  -----------  -----------  ----------- 
Net loss                 $  (330,994) $  (493,753) $  (611,812) $(1,222,550)
                         ===========  ===========  ===========  =========== 
                                                                            
Net loss from continuing                                                    
 operations per common                                                      
 share - basic and                                                          
 diluted                 $     (0.04) $     (0.07) $     (0.09) $     (0.18)
Net income (loss) from                                                      
 discontinued operations                                                    
 per common share -                                                         
 basic and diluted             (0.00)        0.00         0.01        (0.00)
                         -----------  -----------  -----------  ----------- 
Net loss per common                                                         
 share - basic and                                                          
 diluted                 $     (0.04) $     (0.07) $     (0.08) $     (0.19)
                         ===========  ===========  ===========  =========== 
Weighted average common                                                     
 shares outstanding -                                                       
 basic and diluted         8,130,413    6,939,750    7,753,925    6,589,456 
                                                                            
                                                                            
                               POKERTEK, INC.                               
                        CONSOLIDATED BALANCE SHEETS                         
                                                                            
                                               September 30,                
                                                    2012       December 31, 
                                                (Unaudited)        2011     
                                               -------------  ------------- 
Assets                                                                      
Current assets:                                                             
  Cash and cash equivalents                    $     614,196  $     606,229 
  Accounts receivable, net                           636,773        726,520 
  Inventory                                        1,556,218      1,762,806 
  Prepaid expenses and other assets                   91,283        147,487 
  Net assets of discontinued operations                    -         92,310 
                                               -------------  ------------- 
Total current assets                               2,898,470      3,335,352 
                                               -------------  ------------- 
                                                                            
Long-term assets:                                                           
  Gaming systems, net                              1,490,609      1,104,333 
  Property and equipment, net                         29,291         38,855 
  Other assets                                       165,954        223,333 
                                               -------------  ------------- 
Total long-term assets                             1,685,854      1,366,521 
                                               -------------  ------------- 
                                                                            
Total assets                                   $   4,584,324  $   4,701,873 
                                               =============  ============= 
                                                                            
                                                                            
Liabilities and Shareholders' Equity                                        
Current liabilities:                                                        
  Accounts payable                             $     319,403  $     321,955 
  Accrued liabilities                                352,973        468,958 
  Deferred revenue                                   236,957        281,466 
  Long-term liability - related party, current                              
   portion                                            91,420         54,952 
  Long-term debt, current portion                     42,836              - 
  Current liabilities of discontinued                                       
   operations                                              -         70,383 
                                               -------------  ------------- 
Total current liabilities                          1,043,589      1,197,714 
                                               -------------  ------------- 
                                                                            
Long-term liabilities:                                                      
  Long-term liability - related party                232,178        268,646 
  Long-term debt                                     257,164        700,000 
                                               -------------  ------------- 
Total long-term liabilities                          489,342        968,646 
                                               -------------  ------------- 
                                                                            
Total liabilities                                  1,532,931      2,166,360 
                                                                            
Commitments and contingencies                                               
                                                                            
Common stock subject to rescission                    71,183              - 
                                                                            
Shareholders' equity                                                        
  Preferred stock, no par value per share;                                  
   authorized 5,000,000 none issued and                                     
   outstanding                                             -              - 
                                                                            
  Common stock, no par value per share;                                     
   authorized 40,000,000 shares, issued and                                 
   outstanding 8,638,419 and 7,490,124 shares                               
   at September 30, 2012 and December 31,                                   
   2011, respectively                                      -              - 
                                                                            
  Additional paid-in capital                      49,424,793     48,368,283 
  Accumulated deficit                            (46,444,583)   (45,832,770)
                                               -------------  ------------- 
                                                                            
Total shareholders' equity                         2,980,210      2,535,513 
                                               -------------  ------------- 
                                                                            
Total liabilities and shareholders' equity     $   4,584,324  $   4,701,873 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
                               POKERTEK, INC.                               
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                                (Unaudited)                                 
                                                                            
                                                       Nine Months Ended    
                                                         September 30,      
                                                   ------------------------ 
                                                                    2011    
                                                       2012       Restated  
                                                   -----------  ----------- 
Cash flows from operating activities:                                       
  Net loss                                         $  (611,812) $(1,222,550)
  Net (income) loss from discontinued operations       (50,113)       9,187 
Adjustments to reconcile net loss to net cash used                          
 in operating activities:                                                   
  Depreciation and amortization                        550,117    1,051,187 
  Share-based compensation expense                     274,649      541,484 
  Provision for doubtful accounts and other                                 
   receivables                                          37,333      294,500 
Changes in assets and liabilities:                                          
  Accounts and other receivables                        57,494     (254,653)
  Prepaid expenses and other assets                     79,757      163,811 
  Inventory                                            206,588     (438,839)
  Gaming systems                                      (925,449)    (358,224)
  Accounts payable and accrued expenses                (46,538)       6,683 
  Deferred revenue                                     (44,127)    (451,328)
                                                   -----------  ----------- 
Net cash used in operating activities from                                  
 continuing operations                                (472,101)    (658,742)
Net cash provided by (used in) operating                                    
 activities from discontinued operations                66,577      (19,155)
                                                   -----------  ----------- 
Net cash used in operating activities                 (405,524)    (677,897)
                                                   -----------  ----------- 
                                                                            
Cash flows from investing activities:                                       
  Purchases of property and equipment                   (1,378)           - 
                                                   -----------  ----------- 
Net cash used in investing activities                   (1,378)           - 
                                                   -----------  ----------- 
                                                                            
Cash flows from financing activities:                                       
  Proceeds from issuance of common stock, net of                            
   expenses                                            414,869      823,431 
  Repayments of capital lease                                -      (30,793)
                                                   -----------  ----------- 
Net cash provided by financing activities              414,869      792,638 
                                                   -----------  ----------- 
Net increase in cash and cash equivalents                7,967      114,741 
Cash and cash equivalents, beginning of year           606,229      666,179 
                                                   -----------  ----------- 
Cash and cash equivalents, end of period           $   614,196  $   780,920 
                                                   ===========  =========== 
                                                                            
Supplemental Disclosure of Cash Flow Information                            
Cash paid for:                                                              
  Interest                                         $    58,179  $    53,959 
  Income taxes                                          22,272       27,881 
                                                                            
Non-cash transactions:                                                      
  Amortization of commitment fee issued in common                           
   stock                                           $    33,825  $    33,825 
  Issuance of common stock for debt cancellation       400,000      100,000 
  Transfers from inventory to property and                                  
   equipment                                                 -        9,319 
                                                                            
                                                                            
                                                                            
                               POKERTEK, INC.                               
                         RECONCILIATION TO EBITDAS                          
                                (UNAUDITED)                                 
                                                                            
                                                                            
                                                                            
                            Three Months Ended         Nine Months Ended    
                               September 30,             September 30,      
                                          2011                      2011    
                             2012      (restated)      2012      (restated) 
                         -----------  -----------  -----------  ----------- 
Net income (loss) from                                                      
 continuing operations   $  (326,240) $  (494,969) $  (661,925) $(1,213,363)
Interest expense, net         17,752       20,637       58,417       73,646 
Income tax provision          52,353       10,417       59,794       29,958 
Other taxes                    1,977        2,296        9,049       18,386 
Depreciation and                                                            
 amortization                183,732      330,731      550,117    1,051,188 
Stock-based compensation                                                    
 expense                      77,943      274,846      274,649      541,484 
                         -----------  -----------  -----------  ----------- 
  EBITDAS (1)            $     7,517  $   143,958  $   290,101  $   501,299 
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
(1) EBITDAS is defined as net income (loss) from continuing operations      
 before interest, taxes, depreciation, amortization, share-based            
 compensation, and non-cash charges. EBITDAS does not purport to represent  
 net earnings or net cash used in operating activities, as those terms are  
 defined under generally accepted accounting principles, and should not be  
 considered as an alternative to such measurements or as indicators of the  
 Company's performance. The Company's definition of EBITDAS may not be      
 comparable with similarly titled measures used by other companies.         

  
Contact:
Mark Roberson
CEO and CFO
PokerTek, Inc.
704.849.0860, x101
investorrelations@pokertek.com